You need more than a compass to negotiate this

Sterling continues its rally despite the apparent ever-increasing political uncertainty the country finds itself in. Boris Johnson has called for a General Election as MP’s passed a bill to try and extend the deadline beyond the 31 of October and prevent a no deal. These are fascinating times as the opposition uniquely turned down the opportunity to go to the polls leaving Boris Johnson with the dilemma of a calling a vote of no confidence in himself to force the issue.

The data coming from Europe continues to underline the weakness in that economy, indicating that the Brexit uncertainty is likewise impacting not only ours but theirs. The current uncertainty and the impact it’s having on both economies may possibly encourage Europe to try and find a path to resolve the situation. But that maybe hopeful thinking, on the face of it is parliament’s actions has weakened our prime ministers negotiating position. The possibilities as to what the outcome at this point seem almost endless, including no Brexit. Parliamentarians giving the impression of being in a conflicted position, on the one hand committed to delivering the referendum outcome, on the other believing avoiding doing so is in the best interests of the country. Some have even suggested that Jeremy Corbyn could be the one to go to the EU to ask for an extension.

Aside from Brexit the month of August was not a great one for equity investors despite the recovery towards the end of the month. The list of picnic ingredients that fed the bears in the past month was long as sentiment fell far into fear territory. The past few days has seen a recovery as some of the ingredients have been removed. Carrie Lam suspended the part of a legislative Bill that would allow to extradite citizens to the mainland.  A bill that has caused so much civil unrest and weakened the economy. China and the US announced they would resume trade talks in October. The S&P 500 broke back through a previous level of resistance.

Trying to navigate one’s way through the current global uncertainties in the short term feels almost impossible. The current economic expansion is the longest in history, but also one of the slowest. The bears point to a weaker global economy, the bulls to the continued monetary stimulus. The current unchartered territory the bond market trades in, suggesting some greater uncertainty ahead only encouraging investors into riskier assets, due to relative valuations. August may have seen volatility we are now entering historically the three most volatile months of the year.

Posted on September 5, 2019 .