Please see link attached. Upmarket tonic water brand Fever-Tree has seen its shares fall despite its profits more than doubling. Plus betting company 888 posts strong full-year results while housebuilder Bellway raises its dividend. For analysis on the day's top company stories, Paul Sedgwick, Head of Investments at Frank Investments, joined Share Radio's Ed Bowsher.
At 8am this morning we appear on the morning show discussing the outlook for the day ahead.
Equity markets had started this week in a similar vein to the past few weeks, consolidating recent rises. However, on Tuesday the release of UK inflation did put something of a dent in the FTSE 100, as inflation is now above the Bank’s target of 2%. Wall Street broke a 109 day streak by closing down 1%.
Economic optimism has become the overriding factor that is under pinning equity markets, which is a change from the many previous years when it was felt to be cheap money. The latest Fund Manager Survey from Merrill Lynch reported that 23% of fund managers say “boom” against just 1% this time last year. All this statistic probably reiterates that fund managers have little ability to forecast ahead, but seem quite content to “follow the ball”.
Article 50 will be triggered next week, according to the press, and the process starts to undo 40 years of unity in two. Jean Claude Junker, in his latest outburst, wants to make the process as hard as possible to deter other members of the union. Sterling has been showing signs of recovering recently against both the US dollar and the euro. The Merrill Lynch survey records that global fund managers are one standard deviation below their benchmark weighting in UK equities and are underweight sterling relative to history. We often talk about sentiment in these pieces and sentiment seems very negative. What odds the pound hits $1.3 before it hits $1.2?
How long will the sweet spot in markets last? This seems to be the prevailing question amongst newspaper columnists. The fact that we continue to question the rally should give hope it has a few more legs yet. Tom Stevenson in the weekend Telegraph puts the case forward for the bulls, in his opinion fund managers are optimistic, but not exuberant and therefore the bull market has further to run.
The case for the bears remain many. The Federal Reserve might hike rates faster and further than markets expect. Europe with all its current issues, Greece, Italexit along with French and German elections. Some investors point to the rise in the gold price as a sign of risk aversion. John Authers, writing in today’s Financial Times highlights the fund flows into exchange traded funds in the past weeks reminiscent of the late 90’s. Geopolitical risk remains high, as rhetoric between North Korea and America seems to be on the rise. Will the healthcare reforms that Donald Trump wants to introduce delay the tax reforms? Will the current lurch to protectionism which led to the change in the G20 communique over the weekend impact global growth? Despite all these concerns the Vix remains close to historic lows. Any of these above could cause a reaction at any time with no real catalyst. There appear to be plenty of bricks in the wall of worry.