May, you live in interesting times

May you live in interesting times has its origins as an English translation of a Chinese curse, although the origins of the quote have been questioned. The quote is usually used ironically. Theresa May’s time at the helm will at best be called interesting, but more likely a lot worse. The path to delivering Brexit has been poorly laid out and the votes over the last twenty-four hours have been the result. Whichever side of the divide one is on, if the Conservative party fail to come together, they will be seen as a party unable to deliver on the referendum and its manifesto promise. The political fallout for the party could be significant. Many remainers believe another vote is required, Oddschecker still only puts the probability of another referendum and a resulting remain vote as 5/1 against. There is more than enough said on the political implications, we can look at the immediate economic ones.

The pound rallied post the results of the votes as the market considered that Brexit is disappearing into the distance. The pound has rallied approximately 10% against the dollar as the probability of Brexit has reduced, outperforming the broader currency basket. The FTSE 100 hardly reacted to the news, still underperforming other developed markets. Those stocks more exposed to the domestic economy continues to behave better. The chancellor delivered his Spring statement in the middle of Wednesday’s chaos, wanting it to be seen as a bit of a non-event, and seems to have achieved at least that, while painting a relatively rosy picture of the UK economy despite the Brexit uncertainty.

Looking further afield the US stock market reached a five-month high, maintaining its recent run, despite a continuation of mixed economic data. The current confidence seems built around inflation data undershooting expectations ensuring the Fed can keep their more dovish tone and avoiding an economic recession, in a nutshell.

 Chinese data continues to disappoint as industrial production is the slowest in a decade. According to an article in the Wall Street Journal, four Chinese specialists published a paper arguing that Chinese growth had been exaggerated by 1.7% annually over the past ten years, adjusting GDP by VAT.

We mentioned the other day that the equity base is shrinking as corporates continue to buy back equity, either with cash or debt. Another interesting fact demonstrates further shrinkage in available equity for investors. The average age of listed US stocks has risen from 12 years in the early 2000s, despite the tech boom, to over 20 years today. One conclusion could be the onerous nature of company regulation these days along with trying to meet investor demands continually, has resulted in many CEO’s and owners deciding it is wiser to stay in private hands.

 

Posted on March 14, 2019 .