Equity markets started the week on a strong note despite some mixed economic data from the US in the form of retail sales. There was a modest rebound in January however December’s figure was revised downwards. This weakness in retail sales has led to further downgrades to GDP expectations for the first quarter. Despite some signs of a recovery in economic activity in Europe and China the Citi Global Developed Surprise Index continues to fall. Likewise, for the Emerging Surprise Index. The Vix index has fallen back below 15, suggesting that investors are happy to go with the central bankers’ current monetary stance. Bad news, at present at least, appears to be good news for equity markets. There is often talk of when will one of the most extended economic cycles in history come to an end. Not yet if Mario Draghi and Jerome Powell have anything to do with it, seems to be the view.
Despite this, all data on money flows reports; investors have been consistently taking money out of US and European funds, reducing their equity exposure. Equity supply is shrinking as companies continue to buy back shares in their stock.
The vote on Theresa May’s deal did seem, at one point on Monday, to get a boost from the European Union as she appeared to get some concessions on the Irish backstop. Sterling rallied in expectation this improved the odds, if probably only modestly, of her winning the day. However, her hopes were dashed as legal advice coming out the first thing that the risk remained unchanged of our remaining tied to EU rules. One can only speculate that Mr Junker had made this concession with a strong belief it held no substance in law.
The vote went against her, and now we see what happens next. In any other industry, Theresa May would have resigned long ago. As a CEO you propose a strategy, your proposal is rejected, you fall on your sword as you can no longer function due to lack of support. Politics is different, and she will continue to try and find a way to cling on. The next step is a free vote on “no deal” Brexit. How this plays out from here is guesswork, one theory is cross-party talks will result in a Norway style soft Brexit. The likelihood of a General Election this year remains favourite amongst the bookmakers, as one would suggest, is the probability it will not be fought by either of the leaders of the two main parties at present.