23 March 2018

Market declines: US LIBOR or US trade war?.

Headlines scream trade war while a surge in US LIBOR is tightening US financial conditions

It is very easy to point the finger at US trade sanctions against China as a reason for the recent declines in equity markets. The prospect of a near-term confrontation, in respect of access to markets and IP protection (a free competition zone perhaps rather than a free trade area), is clearly unhelpful for global equity sentiment. China’s transition from a catch-up nation to an economic competitor always had to be resolved at some stage. However the second dynamic at work during Q1 18 is a rapid rise in US LIBOR, over and above that of official US interest rates. This is tightening monetary conditions rather faster than policymakers may have intended.

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11 August 2017

North Korea: A problem not of Trump’s making.

Missile development program slowly shifts the political balance

North Korea’s recent successful test of a missile capable of reaching much of the US mainland is clearly a concern but it is not because such an attack is imminent or likely. The history of military rocket development suggests that it will still be some years before North Korea could be assured of a successful, let alone multiple, strike on the US or even Guam. However, in the event of any attack, the overwhelming superiority of US forces would undoubtedly ensure the destruction of North Korea. Therefore in many respects Trump’s most aggressive comments this week were a statement of the obvious and investors should accordingly not over-react, even as volatility has risen during thin trading over the holiday season.

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RSS - Strategic Insight
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*Multiple Sectors
26/04/2018
Equity strategy and market outlook - April 2018

In this month’s strategy piece, Alastair George believes that with output gaps closed future monetary and wage growth developments offer only headwinds, both for markets and levels of corporate profitability over coming quarters. Uncertainty in respect of US trade policy risks a chilling of corporate optimism, leading to a shortfall in business investment and short-term economic momentum even if the probability of an all-out trade war remains remote. After the modest falls from the market highs recorded in January, global equities remain expensive compared to historical valuation levels, according to our estimates. Record profit margins also face risks from developments in trade policy and tightening labour markets. With Fed policy clearly remaining on a tightening track, we stick with our cautious view on global equity markets.

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