28 June 2019

Beware the chance of a surprise

It is interesting the way in which different assets are behaving in vastly different ways

Gold has reached a six year high, no doubt a consequence of increasing tension between the US and Iran, which in turn helps to explain why oil has reversed its recent weaker trend to stage something of a recovery in price. Sterling remains under pressure as the rhetoric between the two would be prime ministers mounts. But share markets are remaining remarkably stable, with Wall Street moving into new high ground.

Of course, the chance of a rate cut from the America’s Federal Reserve Bank - probably as soon as next month – is buoying investors’ confidence. And the G20 meeting in Osaka this week could bring some clarity to the situation surrounding the trade talks between China and the US. The expectations remain for some form of a deal to be struck, but nothing is yet cast in stone. Even so, it does seem remarkable that, with so much having the potential to go wrong, markets feel capable of maintaining an even keel.

As we approach the end of the second quarter of 2019 there will be little in the way of hard economic news emerging until data is collated, though doubtless something will emerge from Osaka. Back home even company news is a little thin on the ground, though this will change dramatically in a month or so’s time as American companies in particular start sharing their results. It seems unlikely that these will provide any surprises, but you never can tell for sure.

The holiday season is fast approaching and traders will be exchanging their screens for buckets and spades. In the quieter conditions this is likely to generate, any unexpected news could well spark a disproportionate reaction – a consequence of thinner trading options. There is still a great deal of uncertainty around, so the chance of a shock or two upsetting sentiment should not be ruled out. In the meantime, markets seem to be remaining remarkably calm. Long may it continue, but it will do no harm to prepare for the unexpected.

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