Published on: October 4, 2019

It’s wild and windy out there!  And the weekend doesn’t look too bright either.  Never mind, the best bet would be to pour yourself a nice cuppa and relax with this week’s News, Views and Truths.

While Storm Lorenzo has been passing over the UK, another storm of a more economic kind has been ploughing a path of destruction through global equity markets.  The old adage of “When the US sneezes, the UK catches a cold”, was very much on point, with weaker than expected US economic data compounding growing geopolitical fears.

The result was a fall in global stocks, with the UK market having its worst day in more than three years.

The consensus in the markets suggests that this shows that equities are finally catching up with bonds on a slowdown of global growth.  In a note issued this week, UBS remarked that equities have been pricing in the least risk, whereas bonds are pricing in a higher risk and that they are more likely to be proven right than equities.

The new concern is that the downward trajectory of US jobs data could continue and possibly spill over into consumer spending; for the US this is a negative, as the consumer is the consistent driver of growth.  If unemployment increases, the consumer will become nervous.

All of this has come at a time when there is little positive geopolitical news.  Be this Trump’s potential impeachment, the continuing trade wars with China (and now the EU), or North Korea firing off missiles into the Sea of Japan, the market is seizing the negative narrative and running with it.

The flipside of this is that money is flowing into bonds, increasing the demand and therefore the price.  As per last week’s blog, bonds are having a rare old time and the concern in equities can be positive for bondholders.

Yet one very interesting point of note that I can bring to the table is equity fund flows.  To those that have spoken to me over recent months, you will be aware of the lack of overseas investor allocation to UK equities, primarily due to the concern over Brexit.

The chart from the FT below highlights that for the first time in a long time, equity fund flows into the UK were positive.  Could this be the start of reallocation?  If it is, there is huge scope to rebalance that underweight position.  Who knows?  But as a wise man once said, “Be fearful when others are greedy and greedy when others are fearful.”

And to finish, a playlist, the topic of which was selected by our very own Martin Howe; massive boy band fan.  Anyway, stay safe, stay warm and dry, and I shall see you all next week!

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