24 July 2019

The calm before the storm?

There is a strong feeling that we have somehow landed in Groundhog Day so far as markets are concerned.


I find myself having to repeat what I have been saying over and over again. Markets continue to hold up, despite ongoing tensions in the Middle East and a lack of resolution over the state of trade talks between the US and China. The only differences this time around are that company news is starting to pick up, with the half year reporting season kicking in, and we have a new Prime Minister.

It is hard to see that the new incumbent in No 10 will make much of a difference to markets overall. The FTSE 100 Share Index is dominated by companies with a global reach, so such issues as the Sino/US trade war and fears of a global economic slowdown are the factors likely to dominate sentiment. Smaller businesses may well be concerned about a no-deal Brexit, given Boris’s promise to leave by the end of October, but even that is far from certain, with Parliament flexing its muscles.

What is certain is that BoJo has assembled a team that is far more hard-line Brexit than Theresa May’s Cabinet. The real battle is likely to be fought in Westminster, rather than Brussels, though. It is difficult to see the EU negotiators giving up much in the way of ground that will count in the minds of Britain’s Parliament. Indeed, if one potential event has pushed its way into the foreground, it is that of an early general election. Aside from the embarrassment that will ensue if the PM misses his 31st October deadline, holding on to his slim majority if a vote of no confidence is called is not a given.

Meanwhile the pound languishes and investors worldwide shrug aside the clouds that gather on the horizon. Perhaps this is understandable, given that they have been present for a little while now and have yet to reach storm conditions. Indeed, with inflation muted, central banks becoming progressively more dovish and real wage increases now common, in this country at least, bullish arguments for equities do exist.

Perhaps the raft of company results that will be unleashed upon us in the weeks ahead will provide a better steer for what to expect in the future. One thing is certain, though. Markets may be quiet at present, but they can turn on a sixpence. With luck Brexit will fade into the background for the remainder of the summer. Let us hope this will not be the calm before the storm.


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