Let us leave Brexit of today's commentary. There is little to add except to say one gets a greater sense that a deal of some kind might be found ahead of the 31st. If that were to be the case another General Election is in the offing. The introduction of the fixed-term parliament act seems to have ensured we regularly head back to the polling station as ever we did.
The surprise this week has probably been the better than expected GDP data for the UK economy in July. The UK economy grew by 0.3%, ahead of expectations. Reducing the odds that we will enter a recession, despite all the Brexit uncertainty as analysts continue to downgrade GDP forecasts for the eurozone region. Yesterdays report could suggest our economy may be in better shape during the Brexit uncertainty than the one across the channel. Manufacturing and construction also improved. As a result of this enhanced data, the recovery of the pound continues.
Although stock markets have marked time in the past few days, there has been quite a shift in sector bias. There are considered two basic styles of investment strategy. Value and growth. Growth stocks are those where you expect appreciation mainly through capital gain and less through dividends. Netflix or Amazon would be an example. Value is supported more by dividends and tends to trade on cheaper valuations than one would expect due to the lack of growth expectations. Value has been underperforming growth for quite some time, and the valuations have become more stretched as investors have looked for growth from value. In the past week, there has been quite a change of tack as value has taken over. The bank's sector has been outperforming despite the contiued negative impact lower rates can have on margins. Growth has been exceeding value over the past five years. Value outperforming growth is considered by some analysts a sign equity markets are running out of steam.
We are likely to see the four largest economies in the world, China, Japan, America and Europe add monetary stimulus in the coming days. In what appears to be a coordinated effort by central banks to defy a global economic recession. The ECB will be meeting over the next couple of days and announcing what measures they may or may not be prepared to take on Thursday. The question will be how effective it will be this time around. Rather as medicine can lose its effectiveness in a human over time so possibly can monetary medicine