5 December 2016

You can’t be given a bloody nose twice.

The vote ‘no’ to Italian constitutional reform in this Sunday’s referendum has cost the Italian prime minister Renzi his job and perhaps thrown the Italian government into turmoil. Markets are however not in turmoil. The euro is close to unchanged, having fallen modestly after the referendum result. European equity markets are sharply higher this morning. While Italian 10y government bond yields have breached 2%, this increase in yields is notably less sharp than at the time of Trump’s election. Investors who panic sold after Trump and Brexit have been reconditioned (correctly in our view) to not immediately re-price risk on the back of specific political events.

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22 November 2016

Earnings revisions: Gap widens between U.S. equities and earnings forecasts.

Though the bullishness is palpable, U.S. equity markets are not being driven higher by 2017 earnings forecasts, which have declined during November. In the absence of upgrades, we would now question how far the slogan of “Make America Great Again” can push U.S. equities. In the UK, market indices appear better supported as earnings forecasts are still increasing, even as the stock market has lagged. In Europe, in euro terms both the market and estimates have remained stable over the last quarter.

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10 November 2016

Trump’s double surprise.

It is quite clear that in the days leading up to the U.S. Presidential election, both markets and surveys got it wrong. Traditional polling once again failed to spot the depth of support for radical political change. This was after all the U.S., which has delivered the strongest post-crisis economic performance of any developed nation. 

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31 October 2016

BOE leadership: Carney’s conundrum.

Mark Carney’s testimony to the UK’s House of Lords economic affairs committee was notable both in regard to his personal intentions and the future interaction between fiscal and monetary policy. In respect of the former, his emphasis on personal circumstances in terms of whether he wished to serve a full 8 year term at times felt uncomfortably close to sounding as if he wished to spend more time with his family. Even if this may have been unintentional it has contributed to the speculation over his future.

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17 October 2016

Sterling: Lower for longer as the EU strikes back.

The UK’s new Prime Minister Theresa May’s honeymoon period is clearly over. Days after emphasising the importance of national sovereignty and appearing to lean towards a ‘hard’ Brexit, a dawn raid on sterling and subsequent weakness has given opponents ammunition to attack the UK’s plan to leave the EU. Furthermore, tough talk from the UK government has been reciprocated from EU leaders and European heads of state. President of the European Council Donald Tusk may even have given the game away by linking the concept of a ‘hard’ Brexit to ‘no Brexit’. For sterling, we believe investors should look through the politics and focus on the economics.

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1 September 2016

UK economy and corporate profits: Refusing to follow forecasts.

Since July, there have been over 250 UK corporate earnings reports or trading statements, which we have been tracking for any sign of Brexit-related weakness. Within these corporate filings we can find little evidence, in either outlook statements or in managements’ referendum commentary, to suggest a slowdown in trading is underway.

On the contrary, over 80% of company earnings reports indicate that trading is in-line with earlier expectations. Furthermore, 16% of companies report that trading is ahead of expectations against only 3% reporting that trading has fallen below expectations. In addition, recent data on house prices and manufacturing surveys seem to confirm that fears of a Brexit-induced slowdown in the UK have proved overblown, over the summer at least.

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27 July 2016

Brexit webinar - One month on.

A month after the UK’s vote to quit the EU, markets are moving on. Despite the UK’s new Prime Minister committing to implement Brexit, global markets remain calm, even if sterling is still well below pre-referendum levels. Within the EU, aggressive Brexit rhetoric has given way to the realisation that a mutually beneficial relationship will need to be found between the UK, the EU and its member states. Early indications suggest a slowdown in the UK in some regards, but earnings estimates have only fallen modestly so far – and only in the most exposed sectors.

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21 June 2016

Brexit, Fed: a short squeeze.

If in the short-run the market is a voting machine, as attributed to value investor Benjamin Graham, yesterday’s 3% rise in European markets represents a vote of confidence in the Remain campaign winning the UK’s referendum on Thursday and a consistently more dovish US Fed for the remainder of the summer.

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25 April 2016

Brexit: Ultimately unlikely.

Edison has not taken any formal position on the desirability or otherwise of the UK leaving the EU. We are however pleased to provide the following summary of the key issues.

First, we believe any discussion on Brexit should be placed in the proper context. Based on current polling data it is significantly more likely than not that the UK will remain in the EU in the two years following the referendum on June 23rd. Online polls may indicate a nation split nearly 50:50 on the issue, but online polls also proved significantly less accurate than telephone surveys in the UK’s most recent election.

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11 April 2016

M&A in the UK - is Brexit opening a (relative) value opportunity?.

Whether down to the potential for Brexit or a widening current account deficit the decline in sterling over the last 6m has been substantial. On a quarter-on-quarter basis the trade-weighted value of sterling has fallen by 7%, representing a move of more than 2 standard deviations away from the mean.

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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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