Well, as expected, that was another jittery week. Most equity markets closed lower with the UK’s FTSE 100 actually being one to have fallen the least. Perhaps because it has already had a pretty grim year to date? The causes this time were pretty clear. Amid thin volumes, a combination of uninspiring economic news was matched with worries about a global trade war and, in Europe at least, the outcome of the Italian Election.
We see the recent disappointing economic news as a short term issue. We still believe that global growth is solid and would point to global manufacturing PMIs as evidence of this. We have, of course, noted previously that we are late in the economic cycle and so recognise that growth momentum is less likely to accelerate from here and more likely to decelerate. But that does not signal an imminent recession.
Worries about a trade war are well founded. Protectionism is rarely a good thing and the impact on global trade has rightly alarmed many. There is clearly more to come on this and the threats made by the European commission president, Jean-Claude Juncker, are likely to cause consternation to those who like to drink bourbon while riding a motorcycle and wearing jeans.
As for the Italian Election, this is not the first time they have had a situation like this. Inevitably, the suggestion that somehow right wing politicians might gain control of a major European economy gets sections of the media hot under the collar. We prefer to wait and see how it plays out before getting too alarmed, and the biggest areas at risk are likely to be the lira and Italian bond yields. Neither of which, unsurprisingly, are positions we hold.
As we have said before, we think it is going to continue to be a bit choppy in the near term. Hold on tight, do not panic, and watch for opportunities thrown up by markets overreacting remains our view.
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