4 October 2018

The final stretch

Now we are at the start of the last quarter of 2018, the opportunity has arisen to look back at the previous quarter.

Certainly, it makes a change from following the political party conferences, which are thankfully now all behind us, or the seemingly endless coverage of the Brexit negotiations. Anyway, little appears to be happening at present that might move markets dramatically, though there is nonetheless plenty going on in the background.

But to return to the third quarter of the year, remarkably, the US benchmark index – the S&P 500 – put in its best performance for nearly five years, despite a recent reversal of fortune. And this against a background of tightening monetary policy, with a further quarter point rise in the Fed funds rate last week. The Federal Reserve Bank is steadily reducing the size of its balance sheet, which does not augur well for global liquidity and may well impinge upon world economic growth.

Actually, they are not alone in bringing to an end the period of easy money that was ushered in as a response to the financial crisis of a decade ago. The European Central Bank, the People’s Bank of China and the Bank of Japan are all retrenching. No wonder emerging markets have been such a difficult place in which to invest recently. They will be finding the going that much tougher as the dollar strengthens and vital commodities, like oil, become more expensive. Indeed, Brent crude topped $85 a barrel recently and with the supply/demand ratio tightening, higher fuel costs look inevitable.

Back home our own Footsie index actually fell during the third quarter – not by a great deal, it is true, but we have continued to lag our transatlantic cousins. The pound has barely moved against the dollar over the course of the past three months. It hasn’t moved much overall against the euro either, though in the intervening period we’ve had a few ups and downs. Just recently we’ve enjoyed a stronger pound, in part due to better economic news, though belief that some sort of a deal to solve the problem of the Irish border issue could be reached undoubtedly helped.

Returning to the present, there are slim pickings on the corporate and economic news front, though the news that Sports Direct had sacked all the senior management from the House of Fraser department store chain raised a few eyebrows. For the weeks ahead, progress on the Brexit negotiations will doubtless loom large over sentiment, though our market appears to remain pretty sanguine. Speaking personally, I can’t wait for the “B” word to drop out of calculations on where markets might be going.

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