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24 April 2017

French Election: Is populism already passé?.

Relief rally follows 1st round vote which puts Le Pen against a moderate

If last year was the year investors were caught out by misleading polls, today’s market action suggests that investors are being caught out by mistrusting them. A collapse in near-term euro volatility, sharply higher equity markets and a compression in the spread between French and German government bonds emphasises the relief that Le Pen was not in a run-off with a far left-wing candidate.

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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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RSS - Strategic Insight
Sector report cover
*Multiple Sectors
28/06/2018
Equity strategy and market outlook - June 2018

In this month’s strategy piece, Alastair George believes that the US vs rest of the world trade confrontation is becoming the dominant narrative. We cannot rule out at this point that negative responses in financial markets may be a prerequisite to negotiating a face-saving route out of the situation for all sides. However, earnings estimates show few signs of the impact of tariffs or disappointing UK and eurozone economic data and robust growth for 2018 remains the consensus forecast. Profits forecasts have even risen in the US in recent months and the median US company is now expected to deliver close to 20% earnings growth in 2018. However, offsetting the benefits of strong US profits growth is the prospect of tighter US monetary policy and larger fiscal deficits. The recent trade protectionism-related flight to safety is understandable but in our view current US 10-year Treasury yields still appear too low. Emerging markets may continue to struggle as the Fed remains focused on US domestic condition. There is no change to our cautious outlook. We continue to believe developed equity markets are in a period of consolidation. Valuations are moving closer towards long-run averages with markets simply trading sideways as profits grow while monetary policy is normalised.

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