A decade after Lehman Brothers failed, what do managers think about banks?
On Monday 15th September 2008, I remember walking into the office, not knowing quite what to expect....
With the first week of June such as busy one, we held off publishing our usual finance and investing wrap this month until after the UK election. And my what a change we have seen in the Conservative’s “strong and stable” positioning.
We take a look at the key events you need to know about, region by region, in June.
It looks like Theresa May will stay for the time being, doing deals with the Democratic Unionist Party to achieve a squeaky majority – longer term, though, she is probably out. She called this election without informing most of the cabinet beforehand, who were blindsided and will now be out for blood. A quick look the morning after the election showed odds on Boris have come down from 66/1 to 5/1!
Weaker sterling will be a plus for UK investors in unhedged overseas markets, at least in the short term. See our full report on the UK election for more on how the result could impact UK and global investments.
Meanwhile, the European Central Bank ECB) met yesterday – an event that was pretty much immediately overshadowed by UK politics. To be fair, ECB president Mario Draghi didn’t really tell us anything ‘newsworthy’. No changes to the current zero interest rate policy nor any amendments to the quantitative easing program – nor even any suggestions of when the program might start to be unwound. Draghi expressed growing confidence in the eurozone’s economic recovery, but left plenty of wriggle room if things slip backwards.
Still in European updates, Trump came to town and insulted (or assaulted!) pretty much everyone. This spurred Merkel to suggest that Europe would just have to go it alone without help from the US … or the UK; she obviously has little hope for any meaningful outcome from the Brexit negotiations due to restart a week after the general election.
The discord was over the ratification of the Paris accord on climate change, which Trump has now formally abandoned, saying that it was just a ruse to disadvantage the US economy. He also said Germany was exporting too many cars to the US, ignoring the fact that Detroit can’t hold a candle to BMW, VW, Audi et al. He would also like to negotiate trade deals with individual member states of the EU, failing to recognise that current rules just don’t allow that. Maybe he is presaging regime change here too.
Back in the White House, the average tenure of senior staff is now counted by the hour, such is the turnover. One of the senior press aides wanted to vet Trump’s Twitter activity so he didn’t last until close of play! There does, however, seem to be a very concerted campaign to have Trump removed from office – how much progress this will seriously make remains to be seen. On the economic front, although headline gross domestic product (GDP) growth may look healthy, underlying figures such as real consumer spending seem to be falling. In a land where ‘more spending’ is the ultimate mantra, this does not bode well.
The US stock market is still very much overbought and a substantial correction at some point would not be a surprise. Valuations are now at the second highest in history, with the highest point coming just before the dot com crash of 2000–2001.
The Japanese stock market had a wobble as the US dollar went through a period of weakness, but it has rebounded as the yen resumed its downward path and is back testing the 20,000–21,000 level.
Asia Pacific and emerging markets
The markets are perhaps reading signs of US dollar weakness and that the US Federal Reserve won’t be able to push through more than one further rate rise. The encouraging series of higher highs and higher lows continues, but now at resistance levels.
Longer term, the growth potential, relative to western markets, is significant, but in any emerging market, tomorrow’s winners won’t be those of today. A market where active managers are a must.
The crude oil price is always susceptible to news of increased output and US shale plays provided the impetus for a sharp fall at the start of the month, but US$50 a barrel has become an important support level. A break above US$57 is the next hurdle.
Gold continues its rally from the January lows, buoyed by uncertainties about just where the US is headed in terms of trade, immigration, interest rates, foreign policy and in fact pretty much everything. A move above the 2016 high of US$1375 would be very good news for the gold bugs; a break above US$1300 would be a good start.
It is still early too early call the end of the 35-year bond bull market, but the warning signs are there. The downtrend in yields since 2010 has clearly been broken and, after such a significant move, a period of consolidation is normal – and that is exactly what we have seen. If rates stay above the rising moving average, then the next move in US treasury bonds will be to 3% yield as a minimum.