Capital Markets Update: March 2019

For professional advisers only. Not to be relied upon by retail investors.

Capital Markets Update

 

  • Brexit still a mess
  • Progress in US/China trade talks
  • Global economic picture is mixed
  • Central Banks remain supportive

 

In a nutshell

Despite a slew of mixed economic data, the equity market rally continued in March. Central banks reiterated their accommodative stance, helping to buoy investor sentiment. Signs began to emerge that China’s economic stimulus package is succeeding, while Brexit uncertainty increased as the Government was defeated twice on its Brexit bill.
 

March’s news – Brexit still a mess

Prime Minister Theresa May failed twice to pass her Brexit deal in the lower house of Parliament. Officially, the European Union has given the UK a choice on Brexit of accepting May’s deal, no deal, or revoke Article 50 and not leave. Currently, the UK has until 12 April to decide. Not surprisingly, sterling was volatile throughout March, with traders continually reassessing the probabilities of various Brexit outcomes as new news came in.
 

Progress in US/China trade talks

Although the March target for a resolution to the trade dispute between the US and China was pushed back, both sides commented that progress was being made. China has reportedly made concessions related to forced technology transfer and intellectual property rights. Further talks are expected in April, and a positive outcome is expected to be good for risk assets.
 

Global economic picture is mixed

Data releases in the US were mixed. The Markit Services Purchasing Managers’ Index (PMI), durable goods orders, and retail sales came in higher than expected. However, there was a slew of weaker than expected data, especially on manufacturing, jobs, and housing. China reported data that raised hopes that its latest economic stimulus was having the desired impact and was also helping global growth stabilisation. Caution over the longer term outlook caused the US 10-year yield on government bonds to fall sharply.
 

Central Banks remain supportive

The US Federal Reserve (Fed) reinforced its more accommodative stance, indicating that it would put a brake on interest rate hikes this year after the four increases in 2018. This continued dovish tone was welcomed by equity markets. In Europe, the European Central Bank (ECB) announced Targeted Longer-Term Refinancing Operations to help stimulate the economy by boosting lending in the Eurozone banking system and preventing a credit crunch that could undermine economic growth.

The Bank of Japan held short-term interest rates and 10-year government bond yields remain around 0%. In its statement it repeated that the economy continues to expand modestly. However, the Bank added a phrase that “exports and output have been affected by slowing overseas growth”. The Bank of England also kept interest rates on hold. Its statement remained cautionary, highlighting that the economic outlook depends on the outcome of Brexit negotiations.
 

Outlook

While investor sentiment continues to pick up, jitters remain over the global economic outlook. We believe that an element of caution is still warranted on equity and bond investments at this juncture.

The current market volatility we are witnessing should create a favourable environment for active fund management, where adopting a diversified investment approach could be rewarded. We continue to look to manage our portfolios through the inevitable market ups and downs to deliver a smoother investment journey for our clients.
 
Camilla Rogers, Octopus Investments
e: CRogers@octopusinvestments.com
t: +44 (0)20 3142 4617

 

Important information:
For professional advisers only. Not to be relied upon by retail investors. The value of an investment, and any income from it, can fall or rise. Investors may not get back the full amount they invest. Past performance is not a reliable indicator of future results. Personal opinions may change and should not be seen as advice or a recommendation. Issued by Octopus Investments Limited, which is authorised and regulated by the Financial Conduct Authority. Registered office: 33 Holborn, London, EC1N 2HT. Registered in England and Wales No. 03942880. Issued: April 2019. CAM008133.