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....
The election calendar has been given a boost by Theresa May calling an election in the UK for 8 June. With a staggering lead of some 20% plus over the nearest opposition party, it would be rude not to. Whether this gives our PM the edge she seems to hope for at the EU negotiating table remains to be seen, but one outcome seems guaranteed – voter fatigue on both sides of the channel!
We take a look at the key events you need to know about, region by region, in May.
May’s announcement galvanised sterling and the resistance level at $1.30 has been reached. Consolidation here is likely until the election result is in and we could then see a move to the next level at $1.35. The effect on the stock market was initially negative – company earnings translated from dollars would have been lower – but the French election result has clawed back some of the losses. The FTSE 100 trend is still up above a rising 200-day moving average, but we now have a lower high and a move below 7100 would be a concern. A move above the recent high at 7300 would be more encouraging.
After the first round of French elections, the establishment has breathed a huge sigh of relief as centrist candidate Emmanuel Macron made it through to the second round to face up against Marine Le Pen, who is running a strong anti-EU campaign. The bookies look to have called this one right after two abject failures in Brexit and Trump, and the European markets, freed of some uncertainty, were up over 3% on the day after the results. We may get another rally if Macron becomes president elect on 7 May.
If he doesn’t, however, things will be very different indeed. The European economy is improving, but not exactly at a rapid pace, especially given the huge printing of money by the European Central Bank. Much has been made of the fact that the two mainstream parties in France failed to get a candidate through. More interesting is the fact that more than 40% of the electorate voted for populist parties, showing just how deep divisions are. Can the EU and the euro really survive without some acknowledgement from the top that the current regime isn’t working?
There is value to be had in parts of the market, but the mid-cap growth led rally may be coming to an end. Finding an active manager investing wisely for the current climate will be the key to success in this market.
In the US, Trump has switched from a Twitter “jaw-jaw” campaign to a belligerent “war-war” footing, using North Korea as an excuse to improve his popularity ratings. The markets had started to recover from their falls following Trump’s inability to revoke Obamacare, but naval manoeuvring in the seas off Korea has added to the uncertainty in the short term.
The failure to get the Obamacare reform through was no real surprise, but what is truly worrying is that in its current format (including any marginal tinkering by the current regime) the ultimate bill is totally unfunded and payable only via huge dollar creation by the US Federal Reserve. Janet Yellen will find it increasingly difficult to get more than maybe one more rate increase through this year.
The Nikkei has had a wobble as the dollar went through a period of weakness, but has rebounded as the yen resumed its downward path. The Japanese prime minister still has a mountain to climb in respect of economic reforms but, as with Europe, there is value to be found here, although the USD/yen exchange rate will be the key variable.
The markets are perhaps reading signs of dollar weakness and that the US Federal Reserve may not be able to push through more than one further rate rise this year. The encouraging series of higher highs and higher lows continues. Longer term, the growth potential, relative to western markets, is significant, but in any ‘emergent’ 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 the US shale plays provided the impetus for a sharp fall at the start of the month, but US$50 has become an important support level. A break above $57 is the next hurdle.
Gold is enjoying another gentle rally, again buoyed by the uncertainties about just where the US is headed in terms of trade, immigration, interest rates, foreign policy … in fact pretty much everything. A move above the 2016 high at US$1375 would be very good news for the gold bugs.