18 April 2019

What Markets Want

The combination of that terrible fire in Paris, the fact that Prime Minister May has succeeded in gaining a further extension in our leaving the EU process...


...and the Easter recess driving politicians back to their constituencies has resulted in welcome relief for us all from Brexit in the media. Not that the chaotic nature of our endeavours to find a route away from Europe has had much effect on the stock market, which has been remarkably buoyant of late.

It could be that markets are getting it right, despite a number of commentators warning of a reckoning to come. Shares have pushed higher since the start of the year, with the S&P 500 Share Index within a whisker of the all time peak it achieved back in September last year. Indeed, the shakeout markets suffered towards the end of 2018 is feeling like a distant memory. Even the index that measures volatility, the so-called “Fear Index”, is remarkably subdued. Why are investors feeling so relaxed about the future?

Perhaps the more encouraging news, marketwise at any rate, is coming from the US/China trade talks, with more positive noises emerging from the American side. True, a deal has yet to be completed, but the indications are that they are getting there. This hasn’t stopped the International Monetary Fund continuing to make cautious noises regarding global growth, but if this uncertainty can be removed, sentiment will undoubtedly take a boost.

Meanwhile, President Trump has been blaming the US Federal Reserve Bank for holding back both the economy and the stock market. It seems they are taking notice of him as a more dovish approach has developed towards interest rate policy – a stance being copied by central banks elsewhere. Maybe this is more down to nervousness at the IMF, but markets appreciate it.

As to the future, no doubt Brexit will rear its ugly head again. The actual leaving process may have been kicked into the long grass, but this can only be temporary. While we have in theory until Halloween to sort ourselves out, in practice it is hard to imagine the government – or the opposition, for that matter – entering into the European elections in May with any degree of enthusiasm. The pressure will be on to seek some sort of accommodation as soon after Easter as practical. The price for opposition support of the Withdrawal Agreement is likely to be a softer Brexit than many in the Tory party would like, but markets won’t mind that either.


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