A truly active approach to equities based on fundamental research and a disciplined investment process
Zombie [zom-bee] noun: a person or reanimated corpse that has turned into a creature capable of movement but not of rational thought.
And so it is with Brexit. For, this week, UK Prime Minister Theresa May, like a builder’s dream customer, agreed to a second extension in as many months. Having flown to Brussels for the umpteenth time, May found European Union (EU) leaders in an understanding mood (France’s de Gaulle-channelling Macron aside). No-one wanted a Hard Brexit, they said. No-one wanted to make the British suffer, they murmured reassuringly. In fact, it seemed the only detail to hammer out was the length of the delay in question. In the event, the EU agreed a final, final, definitely-last-chance Brexit date of 31 October. AKA Halloween. And so the corpse of the Brexit process lumbers on.
The market’s reaction was fairly muted, all things considered, with sterling barely budging. That said, the domestically-focused FTSE 250 Index hit a six-month high on Thursday. Leading the charge were retailers, airline and travel firms. With ‘no-deal’ Brexit off the table for now, traders expect a surge in summer holiday bookings. No wonder: after the last few months, us Brits could all do with a break.
Not content with his high-profile trade war with China, President Trump trained his sights on another target this week – the EU. He is threatening to impose US$11 billion of tariffs on EU goods in response to the bloc’s subsidies for Airbus, the aerospace giant. The White House argues that the state aid is harmful to US interests. Or, to be more precise, the interests of Boeing – Airbus’s main rival. The EU wares in question make for quite the romantic picnic, including olives, oysters, wine and Roquefort cheese. Of course, this is small potatoes compared to the $200 of billion tariffs that Washington has slapped on Chinese imports. That said, Trump has hinted that tariffs could extend to Europe’s all-important car industry. Now, that would really cheese the Europeans off.
The US Federal Reserve (Fed) and European Central Bank (ECB) updated the market this week. The news wasn’t great, with both pointing to a high degree of uncertainty over the economic outlook. As expected, the Fed kept interest rates on hold. However, it said the target range could “shift in either direction based on incoming data”. As a result, the market is currently pricing in a rate-cut over a one-year horizon. We still think the Fed will continue to hold this year, before one further rise in 2020.
Over in Europe, things were a little gloomier. ECB President Mario Draghi said risks remain to the downside, as geopolitics continue to weigh on the Eurozone economy. This includes the threat of protectionism on exports (see above). In response, Draghi pledged to keep monetary policy in place as long as the slowdown continues. The Eurozone also weighed on global growth forecasts: the International Monetary Fund (as ever behind the curve) cut its estimate to 3.3% from 3.5% for 2019, with Germany and Italy two of the main culprits for the downgrade. But Italy decided to go a step further. It updated its budget deficit forecast to 2.4% of GDP this year. This is the same level that caused it to clash with the European Commission (EC) earlier this year. Like Brexit, Italy versus the EC is another event that refuses to die.
But there was some good news from the UK (huzzah!). The economy expanded by 0.2% in February, confounding expectations. However, there was a cloud accompanying the silver lining; the expansion was said to be primarily due to manufacturers stockpiling goods before Brexit. Still, it’s heartening to see business is rising above the political horror show currently running at Westminster.
The death of the UK’s High Street is a familiar lament. Household names continue to struggle to survive, with Debenhams the latest casualty. The old retail business model is kaput. The future of shopping, they say, resides online. Or does it? On Tuesday, British online fashion retailer Asos reported a near-90% slump in profits for the last six months to end-February. This came hot on the (high) heels of a profit warning last December. Management called the performance “disappointing”, citing poor sales in France and Germany and costs associated with new warehouses. Time to fold? Apparently not. Shares in Asos climbed 17% during the day, finishing up 7%. It appears traders cared more that the company maintained its 2019 earnings outlook than current results. The company has six months to prove them right.
The S&P 500 ended its eight-day winning streak on Tuesday, before finishing roughly flat at the close of business on Thursday. Equity markets elsewhere also were muted. European and Japanese traded plus-or-minus 0.5% relative to their values at the start of the week. Meanwhile, the UK government bond market had a delayed response to May’s Brexit deal: it took until later in the day on Thursday for yields to surge in a meaningful way.
From zombies to White Walkers – and the incredible Game of Thrones. After eight phantasmagorical years, the final series of the fantasy epic kicks-off on Sunday. And we know one fan who’ll definitely be tuning in – Rozi Khan. A waiter from Rawalpindi, Pakistan, Khan has gone viral due to his striking resemblance to actor Peter Dinklage, the actor who plays anti-hero Tyrion Lannister. So remarkable is the similarity that tourists come from far and wide to have their picture taken with Khan. But despite all this attention, he never lets it get in the way of his work. After all, he doesn’t want to be known for dragon his feet.