5 April 2017

Trump Bump Deflation

So here we are at the start of the second quarter of 2017, with markets in a quiet frame of mind.


Shares remain close to all time highs on both sides of the Atlantic, but little progress has been made recently, despite reasonable expectations of a continuing economic recovery both here and in Europe an d the publication of some encouraging Purchasing Managers’ Index findings.

These PMIs, as they are known, are surveys of how purchasing managers view future prospects for their companies. These latest figures were supportive of the fact that the economic recovery is continuing – both here and in Germany. These indices are considered one of the best tools for forecasting longer term business and economic trends and are watched closely by professional investors.

The fact that they made little impact could be down to a fear that the post Trump election rally in the US may be running out of steam. So far he has made little real progress on his election promises and, with the Chinese President Xi Jinping meeting with Donald Trump shortly, worries of a trade war with China have resurfaced.

In the end the new American President may well have to be as pragmatic over the future relationship his country enjoys with the World’s second largest economy as he has had to have been with Obama Care. Perhaps a greater concern should be his rhetoric over North Korea. Given also the terrorist attack in St Petersburg and the gas attack in Syria, it is as well to remember that geo-political concerns can also disrupt market sentiment.

With the first pass at how our economic performance stood up in the first quarter of the year due shortly expected to be encouraging, perhaps we should sit back and wait for markets to develop some direction. May is, after all, nearly a month away – and you know the old adage of selling in May and going away – not that too much should be read into such a contention, given its likely origins.

It is believed that this phrase was first coined when the stock market was largely in the hands of wealthy individuals, lucky enough to own houses in London and the country. Once May started, the London house might well be shut up, with families descending to the country to enjoy such pursuits as Ascot and Henley – not to mention numerous house parties. Little wonder they had no time to concern themselves with matters financial, which may be why the second line of the couplet runs “buy again St Leger day” – right at the end of the season.

Let me share with you what strikes me as an example of how much the world is changing. As April started, the shares of Tesla, the electric car manufacturer, received a boost after a difficult period recently. Touching $300 a share, the market capitalisation of this 14 year old company overtook that of the Ford Motor Company, which has been around for 113 years. What is more, Tesla produces just 80,000 cars a year presently, while Ford delivered 6.7 million vehicles last year. The investment world can be strange at times.

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