New article from Tatton Investment Management: Brexit clamour vs. real market new

27 September 2018

The UK’s establishment had pinned high hopes on a Brexit break through at the EU’s Salzburg (non-Brexit specific) summit. The rest of the EU had different agenda priorities and so disappointment was inevitable. Judging by the vastly different media interpretation between Continental and UK media outlets the Salzburg snub is a matter of interpretation. French and German comment centred around the detail of the proposed Northern Ireland border solution, not the Chequers plan altogether. Otherwise it was seen as presumptuous that the UK side felt duped that their plan to ask for broadly the same trade benefits without being a member was not warmly welcomed. No suggestions of intentional humiliation of the UK’s prime minister.

It would seem to me that the interpretation that a cliff edge no deal Brexit has become much more probable now is a vast exaggeration. Much more likely that it is all politics once more – or rather playing to domestic electorates and party conference expectations. The Irish border issue is solvable, given the Canary Islands are part of Spain and the EU customs union, but not the VAT regime. This already requires inner-European customs processing without anybody seeming particularly bothered by it.

For Theresa May’s position at the October Tory party conference on the other side, being in a state of frontal conflict with the EU may proof to be a much stronger platform than being at the compromise stage of negotiations.

Far more interesting for the near-term perspective of global investment was once again non-Brexit related news-flow. This led to a positive week in global stock markets, but interestingly to a lagging of the US market which had thus far been the undisputed leader for the year. Global trade concerns eased as the Trump administration refrained from imposing 25% tariffs on China as signposted by Trump. The 10% tariffs put in place instead are valid until the end of the year and can then be raised to 25% should no deal be done. China’s retaliation was equally softer than expected. This furthers the view that a deal will be done by year end and the 10% for such a relatively short time period is seen as not constituting a significant threat to either the US’ or China’s economy.

That US stock markets did not rise as much as other markets may have had less to do with lowering trade tensions, then with a sudden step up in long term bond yields in the US, which had been static since the last step up in February. Different to then and contrary to perceived wisdom that higher yields increase the attraction of US$ holdings, this time the US$ weakened – and stock markets did not panic (like they did in February).

There have been plentiful interpretations as to the deeper reasons for the change in market dynamics in the US since August, but regular readers of The Tatton Weekly will know that we had been expecting this to happen in due course as inflation expectations have begun to lower future expectation of (real) returns after inflation.

The weakening of the US$ in combination with an improved outlook for global trade is good news for emerging markets (EM) where stocks have been badly beaten up this year as the dollar kept rising and trade volumes declined. Expectations that the Trump trade wars will end sooner rather than later also suggests that the Chinese leadership can effectively counter the inflicted slowdown with decisive short term fiscal and monetary stimulus measures. In 2015/2016 similar action resulted in a massive boost to global demand. Even if the stimulus is less prominent this time, there is a growing perception that the EM liquidity crisis and trade slowdown may be nearing its end.

Should the observed decoupling of rising US yields and rising US$ be a sign that risk capital is beginning to turn its back on the US in search for better (real) valuation opportunities, then we may indeed be witnessing of a rotation of capital market leadership away from the US, where growth in real terms may well have peaked.

News Archive

15 October 2018

New article from Tatton Investment Management: Autopsy of a stock market sell-off


8 October 2018

New article from Tatton Investment Management: Bond market sell-off surprise


1 October 2018

New article from Tatton Investment Management: Poor politics containing bond market risks?


27 September 2018

New article from Tatton Investment Management: Brexit clamour vs. real market new


7 September 2018

New article from Tatton Investment Management: Interesting times ahead


31 August 2018

New article from Tatton Investment Management: “Not the end of the world”


24 August 2018

New article from Tatton Investment Management: Steady markets vs. noisy politics


17 August 2018

New article from Tatton Investment Management: Political strongman tactics come home to roost


10 August 2018

New article from Tatton Investment Management: Summer heat wave makes way for return of political he


3 August 2018

New article from Tatton Investment Management: A gentle deceleration?


27 July 2018

New article from Tatton Investment Management: Hot air for a hot summer?


20 July 2018

New article from Tatton Investment Management:Earnings are growing, why worry?


13 July 2018

New article from Tatton Investment Management: Hard Brexit demonstration potential?


6 July 2018

Notice of Annual General Meeting


6 July 2018

New article from Tatton Investment Management: It is getting hot


29 June 2018

New article from Tatton Investment Management: Digesting or consolidating?


27 June 2018

Preliminary Results for the year ended 31 March 2018


22 June 2018

New article from Tatton Investment Management: Fragile recovery


15 June 2018

New article from Tatton Investment Management: No surprises


8 June 2018

New article from Tatton Investment Management: Delicate equilibrium


1 June 2018

New article from Tatton Investment Management: Ignore politics at your peril


25 May 2018

New article from Tatton Investment Management: GDPR? No - far more interesting news!


18 May 2018

New article from Tatton Investment Management: What's the economic reality of this week's news?


11 May 2018

New article from Tatton Investment Management: Batten-down-the-hatches?


4 May 2018

New article from Tatton Investment Management: Past the peak?


27 April 2018

New article from Tatton Investment Management: Confusing signals?


20 April 2018

New article from Tatton Investment Management: A mixture of messages


6 April 2018

New article from Tatton Investment Management: Could do better


6 April 2018

New article from Tatton Investment Management: Peaking, plateauing or dimming – and how about that


29 March 2018

New article from Tatton Investment Management: End of a stormy quarter


23 March 2018

New article from Tatton Investment Management: Now we know it's risky!


16 March 2018

New article from Tatton Investment Management: Back to Normal?


9 March 2018

New article from Tatton Investment Management: Tariffs to growth


2 March 2018

New article from Tatton Investment Management: Time to take some profits


23 February 2018

New article from Tatton Investment Management: Change of direction or gradual normalisation?


16 February 2018

New article from Tatton Investment Management: Breathing easier for the moment


9 February 2018

New article from Tatton Investment Management: Meteoric stock markets crash bac


6 February 2018

Tatton Investment Management's Stock Market Correction Assessment


2 February 2018

New article from Tatton Investment Management: Good news turns bad news - again!


26 January 2018

New article from Tatton Investment Management: Surprises


19 January 2018

New article from Tatton Investment Management: US$ weakness versus Bitcoin and Carillion


12 January 2018

New article from Tatton Investment Management: Bullish sentiment rings alarm bells


5 January 2018

New article from Tatton Investment Management: Encouraging kick-off


15 December 2017

New article from Tatton Investment Management: 2017 - taking stock


8 December 2017

New article from Tatton Investment Management: Progress versus Bitcoin


5 December 2017

Interim results for the six months ended 30 September 2017


1 December 2017

New article from Tatton Investment Management: Sudden, but not entirely unexpected


24 November 2017

New article from Tatton Investment Management: Invincible markets?


17 November 2017

New article from Tatton Investment Management: Yield-curve flattening: a bad omen?


10 November 2017

New article from Tatton Investment Management: Nervous investors herald more volatile markets


3 November 2017

New article from Tatton Investment Management: UK rate rise: ‘one and done’ or beginning of rate


27 October 2017

New article from Tatton Investment Management: Trick or treat season


13 October 2017

New article from Tatton Investment Management: All-time highs and Q3 results outlook: Reasons to be


6 October 2017

New article from Tatton Investment Management: Bad news – good news


29 September 2017

New article from Tatton Investment Management: Movements


22 September 2017

New article from Tatton Investment Management: QT to reverse QE and 2-year transition period to soft


15 September 2017

New article from Tatton Investment Management: BoE guides for year-end rate hike - Bluff or real?


8 September 2017

New article from Tatton Investment Management: ‘Back to school’ amidst hurricanes, earthquakes


1 September 2017

New article from Tatton Investment Management: Bad news, Good news


25 August 2017

New article from Tatton Investment Management: Summer low or summer lull?


18 August 2017

New article from Tatton Investment Management: More sellers than buyers


11 August 2017

New article from Tatton Investment Management: Stocks take note of North Korea crisis - or do they?


4 August 2017

New article from Tatton Investment Management: Consolidated base but momentum dwindling


28 July 2017

New article from Tatton Investment Management: Summer thoughts about the ‘longer term’


21 July 2017

New article from Tatton Investment Management: Summer lull - delayed


14 July 2017

New article from Tatton Investment Management: Pre summer-holiday investment check


7 July 2017

New article from Tatton Investment Management: Global growth ploughs on while markets take a breathe


23 June 2017

New article from Tatton Investment Management: Quo Vadis Britain?