23 March 2017 · 3 min read

Market wobble? Still time to re-position portfolios

No clear trigger for recent market declines

Even if some calm has now returned, the market declines this week are perhaps a little more disconcerting than usual as they have occurred with no obvious trigger and followed an extended period of very low volatility. This makes the situation a little more uncertain, as specific triggers can often be analysed, quantified and discounted. There is therefore the danger of investors becoming fearful of the unknown - and risk averse - should the declines become more serious.

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16 March 2017 · 3 min read

Just what the Fed wanted

A rate increase and a rising market – but was it really dovish?

Having primed markets to fully expect a US rate increase, the FOMC followed through on the 15th March. If the aim was to deliver a rate increase without abruptly causing tighter financial conditions (code for declining equity and credit markets), then it was mission accomplished. Following the FOMC announcement the dollar eased against other currencies, bond yields fell and equity markets gained. However, despite comforting language within the statement we detected a more strategic, rather than data dependent, direction for US interest rates in the press conference Q&A.

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13 March 2017 · 4 min read

Ready for the rollover?

Tentative evidence of slowing economic momentum

Despite buoyant global asset markets, we are seeing increasing evidence of slowing economic momentum. In the US, bank loan growth has slowed significantly since Q4 16 and the Atlanta Fed’s GDP nowcast is only indicating 1.2% US growth for the current quarter, compared to over 2.5% as recently as early February. In the UK, the services PMI peaked in January and is now declining while in Europe - a bright spot in terms of economic surprise – disappointing German factory orders cast some doubt on the durability of any recovery. China’s M2 money supply growth has also ebbed since Q1 16, suggesting an easing of basic materials prices, should prior correlations still hold.

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3 March 2017 · 1 min read

Earnings trends: Gap risk endures in US

As US markets rise, US earnings forecasts fall

Equity investors have clearly taken some comfort from Trump’s recent address to the US Congress. While the speech was delivered with some unanticipated polish, there was in our view little new policy detail and we were surprised by the resulting surge in global equity markets. In our view, investors and the corporate sector will struggle to incorporate Trump’s fiscal initiatives into capital spending plans and profits expectations until more detail becomes available Therefore, in an enviroment where US earnings forecasts are declining, we continue to question the sustainability of the bull market in US equities.

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28 February 2017 · 3 min read

Market indices riding on political outcomes

Is now really the time to throw in the towel on active management?

When Trump addresses Congress this evening, global investors will be looking for more than promises. US equity investors are now waiting to price in the delivery of markedly higher US corporate profits. Market indices look expensive and thus the fortunes of passive investors seem unusually reliant on political outcomes; is it really the time to throw in the towel on active management?

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23 February 2017 · 2 min read

FOMC minutes: Fairly soon = March or June?

FOMC minutes highlight risk market will be caught offside by Fed in 2017

The most recent FOMC minutes suggest to us that March is a live meeting for the next US interest increase, in contrast to market expectations which imply a less than 20% probability of a hike. We believe the market continues to underestimate the resolve of the US Federal Reserve to use the opportunity of low unemployment and close to target inflation to re-normalize US interest rates.

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