Making sense of this crazy world
Which country will it be next week? We had Venezuela last week, Iran this week – what country will be next on the list? We have Greenland and Cuba conflicts bubbling just beneath the surface, not forgetting the ongoing Ukraine situation which seems to be escalating rather than abating as peace talks continue. The interconnectivity between the main powers of the US, China, Russia and Europe cannot be underestimated in this game of ‘risk’ which extends right across the globe with protectionism and self-interest dominating strategies.
It’s easy to get caught up in the emotion of politics, but it’s also important to try to understand the impact of cultural heritage. Some countries across the world just don’t think like others due to their history and regimes. It’s really difficult for someone living in the UK, for example, to really understand what life must be like in Iran, Russia, Venezuela, or Syria.
When it comes to investing, as I reminded our Investment Committee earlier in the week, it’s vital, as professionals, we don’t get caught up in the emotional elements of the news when making calls on what assets are likely to perform well. The same follows for our clients. We should only focus on those things that we can control.
The manifestation is that conflicts, however unpleasant, throw up opportunities. Defence stocks are a case in point, along with commodities such as gold and silver. A weakening dollar is also good news for emerging markets, in general terms.
Then we have the macro view; falling inflation and lower interest rates are good news for consumer-led businesses, and smaller companies should also perform well with debt and loans being easier to service. Asset-wise, bonds should perform well in this environment, along with property and infrastructure.
We also need to consider the impact of internal politics. Trump, by attacking the Federal Reserve yet again, brings into question how independent it will be moving forward. The dollar has fallen in response, which has helped drive momentum towards other asset classes.
Today, despite the above comments, I’m not going to talk about geopolitics or tariffs for the rest of this update!
Instead, our content will be:
- UK inflation and interest rates set to fall further
- All helps the property market
- Buffett’s stock market indicator flashes a warning for US stocks
- Perhaps it’s too early to rotate
- A cap on credit card interest for one year
- Assessment of risk for global markets
- Power matters: China has a competitive advantage
UK inflation and interest rates set to fall further
On Wednesday, the Bank of England’s (BoE) policymaker Alan Taylor, stated that he expected inflation to continue to fall towards the central bank’s 2% target soon. He went on to say, “we can now see inflation at target in mid-2026, rather than having to wait until 2027 as in our previous projection”.
This is good news for the continued reduction in interest rates. As recently as September, inflation was at 3.8% year-on-year, almost double the Bank of England’s target, and many were arguing UK interest rates would have to stay higher for longer. By November, inflation had fallen to 3.2%.
All helps the property market
As reported in Bloomberg, UK estate agents have turned more optimistic as easing borrowing costs and Budget clarity have lifted sentiment in the property market.
The Royal Institution of Chartered Surveyors said its gauge of expected home sales surged to 22, up from minus 4 the month before and the highest since October 2024. Optimism for the year ahead also became more widespread.
Continues…
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Please Note: This communication should not be read as giving specific advice regarding your personal circumstances. This would only be given following detailed assessment of your individual needs. The value of investments may fall as well as rise; you may get back less than invested. Past performance is not necessarily a guide to future returns.