New article from Tatton Investment Management: Geopolitics re-enter market stage

13 May 2019

Just as markets were trying to prove that they have regained some rational balance when they shrugged off central banks’ rejection of further monetary support, geopolitical tensions returned with vengeance. Perhaps it was naïve of the international investment community to assume (and price into their market valuation metrics) that the US and China would imminently reach a trade agreement, simply because it is widely accepted wisdom that trade wars have no winners.

It is still hard to gauge whether it was brinkmanship on the Chinese side, too much pressure from Trump or internal disagreements on both sides which led to the breakdown in the negotiations. In any case, the week began with some threatening Trump tweets and ended with a massive further hike of US trade tariffs on imports from China and no dates for further negotiations. However, just as the week before, markets reacted far more sanguinely than most strategists would have imagined to the prospect of serious negative consequences for the world’s two largest economies.

Admittedly, stock markets have lost between 2 and 3% over the course of the week, but that is certainly not pricing in the fact that the tariffs will be around for long enough to actually bite. What is more, they were happy to recover considerable earlier losses in Friday late trading in reaction to the slightest of hints by the US administration of trade optimism. This is remarkable, given it was not just the US-Sino trade war that increased the geopolitical risk  barometer: Venezuela (an oil giant of days past) is descending ever faster into civil war, North Korea’s “rocket man” has resumed his test launches, and Iran’s economy and its moderate politicians are coming under ever increasing pressure from the Trump administration, who are threatening military intervention should they find Iran is undermining US interests and undermining their own allies with sanctions should they dare to continue buying Iranian oil.

This relative market calm cannot be attributed to another round of splendid corporate earnings results. The Q1 earnings announcements are in aggregate just about delivering a positive single digit growth rate and a no-better-than-neutral outlook by company managements. The uninitiated observer would be excused for taking this as a formidable decline and a disappointment after last year’s double-digit profit growth and very upbeat outlook statements.

What is most likely keeping markets from descending into panic is a disbelief, on the one hand, that the trade negotiations will come to naught within the three week grace period until new tariff rates kick in. On the other hand, there is now a growing belief that the rising geopolitical tensions will make it even less likely that central banks will dare to raise interest rates and allow corporate financing burdens to rise any time soon.

In the absence of renewed earnings growth, market prospects are once again uncomfortably dependent on global monetary policy. As we experienced so painfully last year, this is not a stable foundation for sustainable increases in market valuations and can drive markets down as quickly as up.

For the coming weeks, this opens up the prospect of another rally, at least recovering last week’s losses. But this very much depends on the future course of not just the US-China trade negotiations but also Middle Eastern tensions, not to forget North Korea and Venezuela. Over the medium term, we will have to watch closely whether the tariff and oil price-induced inflation will indeed prove transitory or will force central banks once again to fear (and counter) inflationary pressures like last year.

The UK’s continued total preoccupation with Brexit is far less likely to play part without looming deadlines However the same cannot be said about the Europewide elections to the European Parliament. The anticipated gains by more populist and extremist political forces on either side of the political divide - almost everywhere in Europe- will probably either lead to more unconstructive political instability or will force a more constructive adjustment of political positions, encouraging more cohesion between the recently not so unified peoples of Europe.

 

We will refrain this week from any suggestions of imminent market or currency movements. But we would like to point out that currency markets did come to their senses as quickly as we had suggested. The €-Euro has regained ground against $-Sterling, as it has become more widely accepted that the UK’s uncompromising Leave and Remain camps have established a majority over moderate political forces in the UK which will make it most unlikely that any Brexit compromise can be passed by Parliament. This makes another referendum almost inevitable and thereby the necessity of a further Brexit extension beyond October most likely. Uncertainty is therefore bound to continue, while the only absolute certainty has become that UK society will remain deeply divided for many years to come. And that is true whatever the outcome of the next plebiscite might be.

 

News Archive

20 May 2019

New article from Tatton Investment Management: Market support for Trump or unwarranted equanimity?


13 May 2019

New article from Tatton Investment Management: Geopolitics re-enter market stage


7 May 2019

New article from Tatton Investment Management: Central banks disappoint expectations


29 April 2019

New article from Tatton Investment Management: Waning market stimuli put stock markets on notice


23 April 2019

New article from Tatton Investment Management: Spring time from here?


16 April 2019

Trading Statement for 12 months ending 31 March 2019


15 April 2019

New article from Tatton Investment Management: Brexit in-limbo aside sentiment is improving


8 April 2019

New article from Tatton Investment Management: Happy 10th birthday, choppy bull market


1 April 2019

New article from Tatton Investment Management:29 March 2019 – quarter end


25 March 2019

New article from Tatton Investment Management: Brinkmanship and extensions


18 March 2019

New article from Tatton Investment Management: Bits & Pieces


11 March 2019

New article from Tatton Investment Management: ECB stimulus U-turn leaves markets unimpressed


4 March 2019

New article from Tatton Investment Management: £-Sterling ‘applauds’ prospect of Brexit delay


25 February 2019

New article from Tatton Investment Management: Progress?


18 February 2019

New article from Tatton Investment Management: Investment perspectives for different Brexit outcomes


15 November 2018

Interim Results for the six months ended 30 September 2018


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?