Fortunate to be appearing on IGTV on Wednesday morning with Jeremy Naylor. In the discussion, we will look at the financial topics concerning capital markets at present, and of course Brexit. Preparing for the show the picture at present looks an optimistic one, the global economy is predicted to grow around 3% this year, and corporate earnings of about 8%. The correction in equities reflected a fear that these expectations may remain too optimistic, a level of concern at the slowdown of the global economy after several years of growth, and are we heading towards a global recession? As, volatility hit risk assets central bankers started to react, the Federal Reserve has had a more dovish tone to the rhetoric recently. Interest rates in the US are now forecast to stay where they are, at least in the short term, as they are for a large part of the globe. Later Wednesday we will hear from the Federal Reserve and see whether that message will be reiterated. China has added stimulus to their economy in the recent weeks, as leading indicators suggest contraction. The correction has led to valuations, for the first time in a while look reasonable. Economic concerns have in turn led to concerns that years of cheap money have encouraged less responsible borrowing.
Despite these uncertainties’ equity markets bounced in early January as sentiment reached a point where investors had started to throw in the towel, so often the case. Credit markets have also shown something of a recovery. Earnings have shown a mixed picture, those more exposed to the Chinese economy, such as Caterpillar, generally failing to meet expectations. Apple lowered expectations at the start of the year on Chinese sales.
The latest OECD data suggests the uncertainty around Brexit has had some impact on the economy. The OECD leading indicator index has fallen to its lowest level since 2012. On Tuesday, after Theresa May announced that she would be prepared to go back to the EU to renegotiate and try to secure changes to the backstop to get her deal finally through. This announcement seemed to provide the leverage for a better night than some others she has had in parliament, as the amendments that could have delayed the Brexit process were defeated. Despite the voting going Theresa May’s way, sterling reacted negatively. The odds on a no deal had been falling perhaps the reaction of sterling brought that prospect a little higher. Fund managers weighting to UK equity are at 20 year low.