Please find below our Weekly Market Update for the week ending 26th July 2019.
Blue Sky Comment
So, Boris is our knight in shining armour! Whatever happens, let’s hope we get some stability soon… although we may just be into act 3 of this unfolding drama.
There’s something ironic that suddenly Boris is uniting people with his optimism whilst the outlook for Europe doesn’t look good. Mario Draghi, the European Central Bank President, said yesterday that it is “unquestionable” that governments will need to pitch in with fiscal measures if conditions continue to deteriorate in the Eurozone.
The ECB looks set to add much needed stimulus in September, which could be good for the European equity markets, at least for a short while, but this would appear not to be enough with Draghi suggesting that tax advantageous measures across member countries need to be introduced.
Globally, corporate earnings have been broadly positive for stocks but worries still linger over trade and a slowing global economy. The question now is how long can this rally continue? How much of the Fed’s anticipated rate cuts are in the price?
Yet it’s not all about the FED. JPMorgan, in their weekly bulletin, commented on China’s growth rate slowing to 6.2% year on year in the second quarter. They state that, in the face of slower growth and significant trade uncertainty, Chinese policymakers seem determined to keep growth in the region of 6-6.5% for 2019. And there are tentative signs that the more domestic focused stimulus – via tax cuts for consumers and corporates – is beginning to feed through to the economy as retail sales, industrial production, and fixed asset investment were all strong in June. The European economy is especially sensitive to demand from consumers in China and broad emerging markets. If Chinese appetite for European goods significantly improves due to the stimulus, then this could help lift the European manufacturing sector out of its current weak patch.
It just goes to show, whilst the news is poor, it’s important not to be sucked into negativity. In our capacity as investment advisers, it is always important to look beyond the immediacy of gloom and doom and anticipate the potential solutions which may be put to work.
We see lots of opportunities, but it pays to be nimble and active in this extended economic cycle. Quite how long it will last depends largely on stimulus… and of course, confidence.
Closer to home, how long Boris will last remains to be seen, but if he delivers stability in the UK without causing a break-up of the United Kingdom, he will be feted in many quarters.
We watch with interest.
Blue Sky Investment Team