25 July 2018

Welcome to the Silly Season

As the heat wave grinds steadily on, with no rain having fallen in my part of the country for 50 days or more, markets seem to be basking in the sun.


Even the fact that a Football World Cup win eluded us has failed to dent confidence and, by and large, shares remain in pretty good shape. Perhaps the heat wave is adding to the feel good factor – and the hot weather is by no means confined to southern Britain. The reality is that there really is little to get ones teeth into in these dog days of summer. Even Parliament has closed its doors and won’t be returning until early September unless a crisis emerges.

If share markets are providing little in the way of surprises, the same cannot be said for currencies. The pound has stayed under pressure as doubts persist over whether a deal on Brexit is possible, while the US dollar continues its upward trajectory, helped by rising interest rates. Indeed, while President Trump may have expressed disapproval of the Fed’s latest rate rise, the economic background does provide support, with unemployment in America the lowest since 1969.

On the company front, Google’s parent, Alphabet, announced some better than expected results, propelling the shares higher and creating the possibility of it becoming the world’s first trillion dollar company. Given that the European Commission slapped them with a hefty multi-billion dollar fine recently for anti-competitive practices, the sheer power of this technological leviathan clearly counts in investors’ eyes. Google is, of course, challenging the ruling, which concerns its Android operating system, so the game is by no means over.

On the other side of the world China is already taking action to mitigate the likely effects of the Trump initiated trade war, with monetary easing and infrastructure spending both on the cards. The Chinese economy is slowing and the government there is anxious to avoid a hard landing. With some conciliatory noises coming out of Washington with regards to trade with Europe, the IMF – which has been warning of the dire consequences of the introduction of tariffs on global growth prospects – could start to moderate its concerns.

But the fact remains that at this time of year, with dealing rooms emptied by holidaying traders and politicians as far from Westminster as they can manage, much of the news is likely to be at best irrelevant, at worst downright silly. True, the oil price is drifting lower and there are signs that North Korea may indeed be making a start on scrapping its nuclear arsenal, so perhaps investors are right to be sanguine. Probably the biggest potential fly in the ointment is a global trade war, but U-turns are not unknown by President Trump. With luck nothing substantial will happen before the autumn, so we should be able to sit back and enjoy the sunshine.


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