10 February 2017

Hold on - it's all change!

Markets have quietened down over the course of the past two weeks.

While uncertainty over what President Trump might do next, coupled with the ongoing speculation over the nature of the Brexit deal that could be negotiated should be weighing on sentiment, there is little sign of investors heading for the hills. Indeed, overall shares have held on to much of the gains that took indices into new high ground, despite the prospect of more change on the horizon.

Of course, all the indications are that economic activity is holding steady, while inflation does appear to be creeping up again. Thi s is not just here in the UK, where a weaker pound drives up the cost of imports and thus the cost of living. In Germany and in the United States inflation is actually running ahead of the figure back home. Perhaps the cheap money era may be coming to an end after all – another potential change.

Central bankers appear somewhat reluctant to move away from the loose monetary stance they adopted in the wake of the financial crisis, now more than eight years past. Yet it is hard to see them able to continue such a policy if inflationary pressures persist. In the US wage inflation has picked up significantly – hardly surprising as unemployment has come down by nearly half in recent years. It could be that Janet Yellen may find her tenure at the Fed at threat.

Meanwhile, we are heading into the company reporting season, with those businesses operating to a calendar year end publishing their full year results. BP disappointed, but that did little to dent sentiment overall. As the days lengthen, so the pace of company results will intensify. So far there seems little to suggest corporate experience is likely to upset the market, though in those instances where figures come in well below expectations, the consequences can be cruel.

Elsewhere, the news that Aldi had replaced the Co-op as the country’s fifth largest grocery retailer reinforced just how life has changed for shoppers in recent years. Change seems to be the watchword of the 21st Century. With a Budget due next month and the Brexit negotiations due to start in earnest before too long – not to mention Mr Trump’s initiatives – it could be that more changes are on the horizon. Given the speed at which technology is overturning the old order in many industries, markets need to learn to live with change.

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