8 June 2016

Into the unknown

Markets are remarkably quiet at the moment – hardly surprising with the referendum still overhanging market sentiment.

True, we have seen a generally better tone for shares recently, perhaps because other indicators have generally proved positive for investors. Nothing is too conclusive, though, and several uncertainties still exist around the periphery.

On the plus side, the likelihood of a rate rise in the United States has receded still further, partly because recent economic data has proved more subdued. Back home, the pound seems to have stabilised, although given how many countries seem to be competing to lower their currencies in order to improve their competitive position, this might also count as a negative.

The recent publication of the Halifax house price index suggests the appreciation in the value of residential property might be coming to an end. Houses rose in price by over 9% in the year to the end of May, but much of this was driven by the rush to beat the new stamp duty increases that came in on the 1st April, leading to a very buoyant March. Indeed, this annual increase was unchanged on the April figure, a clear sign things are slowing.

Looking ahead, we will soon learn how the UK’s trade balance is faring. The chances are that the deficit in April will have risen from March’s £3.8 billion. Part of the reason is a slowdown in manufacturing activity and the decline in the value of the pound during the early part of the year – both a consequence of the uncertainty generated by the referendum. An improvement in the oil price has also contributed as the UK is now an importer overall.

A trading update from Sainsbury’s provides a useful steer on how the supermarket world is coping with the twin threats from online shopping and the discounters. This has led to something of a price war – good for consumers, but not likely to do the bottom line much good, as underlined recently by Asda’s boss. While macro concerns still dominate, it is as well to remember that more localised issues can be important too.

Across the channel, mixed signals have been emerging from Germany, where unemployment has fallen but factory orders have fallen. And the average yield on German government bonds has turned negative for the first time. Perhaps they too are suffering from the uncertainty over whether the United Kingdom is to remain a member of the European Union. Certainly, I’ll be glad when the referendum is behind us, though a Brexit will simply create a new set of uncertainties.

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