New article from Tatton Investment Management: Delicate equilibrium

8 June 2018

One week after Italy’s disruptive reminder that capital markets are still quite sensitive to the wrong sort of news, equity and bond markets returned to much quieter waters. Italian bond yields remain more elevated compared to other Eurozone countries than they have for a long time and this might not change for a while.

All the more important for the Eurozone and the EU as a whole then that German chancellor Angela Merkel finally put her EU reform proposals forward in the form of a newspaper interview. Strangely, they received little international attention, even though they had been eagerly awaited ever since France’s Emmanuel Macron shared his grand vision 8 months ago.

While she somewhat bluntly rejected a debt union – which would be the natural and most stability instilling next step for the lose currency union – she did make quite detailed alternative proposals, which may be more achievable than a grand vision anyway.

Namely, the conversion of the existing European stability mechanism and fund into a European IMF in all but name. This could prove to be what it takes to make the sensitive Eurozone construct more resilient against future crises. It would provide a proper framework for the extraordinary emergency measures the ECB was forced to apply under Mario Draghi’s ‘whatever-it-takes’ leadership to avert the last Eurozone crisis, and thus prevent it from reoccurring in the first place.

Perhaps even more important in fighting the cancer of populism across Europe could be her initiative to work towards a common immigration and asylum policy, to be enforced through a joint European border force. If such a policy shift succeeded, then it would even have the potential to remove a number of highly controversial Brexit red lines.

Speaking of the dreaded Brexit, it appeared to us as though the UK moved yet further away from an actual March 2019 exit from the EU. First, Labour’s swing towards demanding the government assured ‘full access’ of the UK to the EU market, and then the government’s agreement of a back-stop plan of remaining in the customs union should it be impossible to reach a new free trade accord in time.

A BINO (‘Brexit in name only’) environment would move the potential economic cliff edge further into the future, and would therefore be preferential for the UK economy compared to a 2019 exit without a well-defined trade framework. Nevertheless, the uncertainty is increasingly a drag on the UK’s economy and the fragile balance this creates between the currency markets, UK interest rates and the property market (!) is something we are discussing this week in a separate article.

From the global political perspective, trade also remains centre stage, as the G7 heads of state gather in Canada. It will be interesting how Trump will fare in what is expected to be a hostile environment towards him, given it is the US consumers who will be hit by the imposed tariffs. Given the relative strength of the US economy at the moment, Trump’s measures may also lead to an even larger current account deficit, which we discuss in our third article this week.

If it was not for political risks, we would be looking increasingly optimistic towards the summer months. Economic data flow continues to confirm that the global economy continues to prosper, even if it is no longer doing so in quite as synchronised a manner. Europe has cooled from unsustainable boom back to a far more sustainable speed of expansion, while China remains stable and the US is now running at Europe’s speed of last year. This will result in another 0.25% rate rise by the US Fed central bank next week. The general tightening of financial conditions that this causes, together with the uncertainty and trade headwinds Trump feels obliged to introduce, could soon slow the rate of expansion there in the same way Europe slowed when the Euro strengthened.

Oil has become slightly less of a concern over the past week, because the predictable supply increase on the back of the higher prices has become evident. As a result, further oil price upside now appears capped, despite the likely fall in future supply from Iran and Venezuela.

This leaves the further global economic expansion in a delicate equilibrium between further improving business sentiment, the return of more normal (albeit tighter) monetary conditions and the risk of collateral damage from Trumplomacy.

The much predicted ‘Sell-in-May-and-go-away’ market sell off pattern has passed us by and, on the basis of the stable and measured global economic expansion, we expect a similar medium-term path for equity markets. Sadly, this may well be interspersed with bouts of volatility, as politicians grapple to establish a new world order in which the USA and China play very different roles compared to the past we have known.

News Archive

15 November 2018

Interim Results for the six months ended 30 September 2018


12 November 2018

New article from Tatton Investment Management: The American people have spoken


15 October 2018

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


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?