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4 November 2016

BOE: Bank on track.

Today’s BOE decision represents a correction in UK policy makers’ thinking. The sudden stop in activity which was implied by the Bank’s August stimulus package has not materialised and the focus has instead returned to significantly above-target inflation by 2018. This is going to be supportive of sterling, especially as consensus views on the exchange rate had become so negative.

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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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16 August 2016

Earnings forecasts: Reassuringly stable?.

Recent trends in consensus earnings forecasts highlight analysts’ confidence in corporate performance for 2016, even as GDP forecasts continue to decline. For now, it appears that the global phenomenon of steadily declining earnings forecasts, a factor behind the relatively weak 2015 equity market performance, has ebbed. There also remains no observable impact on aggregate UK earnings forecasts from Brexit to date, although as we have previously noted for the UK, FX benefits for exporters have offset modest downgrades to sectors focused on the domestic economy.

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10 August 2016

Gilt shortage: It takes two to tango.

Yesterday’s failure by the Bank of England fully cover its bond purchase order indicates that the re-introduction of QE has created a significant squeeze in the UK’s bond market.  This auction failure highlights a possible constraint on the BOE’s QE policy, at least until a more expansive fiscal policy delivers a significant increase in the future supply of gilts or substitute securities.

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RSS - Strategic Insight
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*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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