In the recent economic and political climate, with gloom, doom and downturns trumpeted from every corner, investors were edgy and the stock market shivered. But what is the current reality in the global markets, and should we adopt a more optimistic outlook? Read on for the latest economic updates.
US and China trade war wages on
The United States and China – who generated $660 billion in trade between them in 2018 – are fighting a trade war that’s having a harmful economic impact worldwide.
The feud began as a tariff dispute, with each country raising tariffs in response to retaliatory hikes from the other, but soon infected other areas as well. A year on, with no clear resolution in sight, investors and analysts are increasingly pessimistic. Despite several rounds of negotiations, a breakthrough appears to remain elusive.
There has been some recent movement on both sides of the dispute, with China excluding some US products from additional tariffs, and the Trump administration also agreeing to halt further hikes.
Companies and investors fear that the situation will only get worse and are reducing their investments.
A Chinese delegation is set to meet with Trump administration officials to prepare for high-level talks in October.
Brexit: dead or alive?
On September 19, the pound rose against the dollar and euro in response to comments made by Jean-Claude Juncker to Sky News that a no deal Brexit would be “catastrophic” and after “rather a positive meeting” with Boris Johnson, “we can have a deal”.
This was the highest level for the pound since July 19, when Boris Johnson had just become prime minister. The pound was bolstered further after a series of defeats for Mr Johnson in Parliament against his no deal plans.
However, a subsequent discussion with the prime minister of Luxembourg, Xavier Bettel, turned hostile, with Bettel telling the assembled press and vocal protesters that Johnson had no concrete proposals for replacing the Irish backstop, and EU leaders are not responsible “for the mess [the UK and EU] are in at the moment”.
Ahead of key meetings at the UN summit in New York, Johnson seemed pessimistic, too, saying: “I would caution you all not to think this is going to be the moment … we will be pushing ahead, but there is still work to be done.” The meetings were promptly cancelled when the UK Supreme Court ruled that his suspension of Parliament (called ‘proroguing’) was unlawful and Johnson had to make a speedy return to London as both houses reconvened.
The prime minister seemed more confident speaking to Andrew Marr on the first day of the Conservative Party Conference this week, claiming that Britain can still leave the EU on 31 October in defiance of the Benn Act, which was passed to prevent a no-deal Brexit by forcing Johnson to ask for an extension.
Clem Chambers, voted Journalist of the Year in the Business Market Commentary category in the 2018 State Street UK Institutional Press Awards, declared on Forbes.com that “the UK stock market is increasingly telling us Brexit is dead”.
He continued: “If … Boris Johnson does not have a fail-safe way to force exit on October 29, Brexit will not happen without an act of god, ever. France could reject an extension or an extension of an extension, the next election could see Nigel Farage as PM, but these are all unlikely turn-ups.
“So the position is binary, dead Brexit or hard Brexit at the end of October. The stock market seems to be now indicating dead Brexit.”
Setting out the benefits for investors in both a hard Brexit and dead Brexit scenario, Chambers concluded that “the market is buffered on the downside and levered on the upside” and “a dead Brexit is sure to rally the market”.
Elsewhere, economic uncertainty caused by seemingly interminable Brexit debates and negotiations is making Chinese firms unsure about the London-Shanghai Stock Connect programme, harming efforts to unite the two financial markets.
With the economic pressure of the ongoing feud with the United States, China wants to boost investment and create stable growth, but the political and economic uncertainty in Britain is making Chinese firms hesitant to raise new funds on the London stock market.
Investment in our future
Investment opportunities have not only been affected by economic and technological disturbance, but also by political and social shifts such as the rise of populism and heated protests and debates over climate change.
Iain Fulton, portfolio manager of Nikko AM, remarks that “at the moment, the over-riding sentiment of the global ‘crowd’ is anger – which is very unusual at this point of the cycle, with low rates and high employment.
“Low levels of real wage growth, an increasing cost of living, and high debt levels in the system overall has left many feeling they have missed out – even as markets and corporate profits accelerate to new highs.”
As a result, choosing quality companies working on solutions to environmental and social issues while still offering good returns on capital has become vital.
Tensions between the US and China could drag on for a decade, so investors must learn to operate in an indefinitely uncertain climate.
“There’s lots of debate about current trade negotiations and whether a deal happens or not. I think the broader view I have is that we all need to simply learn to live with it,” says Charles Kaye, the co-chief executive of private equity giant Warburg Pincus. “There will be points of collaboration and points of contest, and hopefully none of those spiral into something that has a somehow more negative dimension to it,” he adds.
Reasons to be cheerful
Despite reports that global economies are weak, the yield curve being inverted and an economic recession is looming large, there has not been any sustained sell-off in stocks.
Jeffrey A. Miller, CEO of NewArc Investments, Inc. and strategic advisor, acknowledges a drop in confidence and increased uncertainty in a recent economic report, but says retail sales – particularly online –have been strong and the odds of a recession are surprisingly low.