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POLITICIANS VEER TO THE LEFT

10 Oct 2016

Ahmer Tirmizi, Investment Manager

This week's overview covers the UK political scene, Sterling's movement, the latest global, macro economic data, and Trump's election campaign.

POLITICIANS VEER TO THE LEFT

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Prime Minister Theresa May’s statements from the Conservative Party Conference appear to be taking the party firmly into the centre ground, and perhaps even into traditional Labour territory given the speeches about intervening in the markets when they need to change and employ the power of government for the ‘good of the people’. Combined with Corbyn’s promised socialism, it may leave the traditional centre right lacking politicians’ attention.

NEWS

STERLING PRESSURES
The Pound settled at US $1.24 at the end of trading on Friday having fallen further than $1.15 earlier in the day. The decline was blamed on algorithmic trading systems reacting to news quoting French President Hollande in which he signalled that he was keen to punish Britain for Brexit. Whatever the reason, the currency is looking increasingly vulnerable as markets begin to digest all the implications of Brexit. Meanwhile, the even lower value of the Pound is likely to put further pressure on inflation, which is rising here in the UK, as it is across the globe – particularly as oil prices fall out of the equation.

NEW GLOBAL MACRO DATA POSITIVE
After a difficult summer, a number of macro data points surprised on the upside. In the US, September’s ISM manufacturing index rose to 51.5 from 49.4, above the 50.4 consensus. Meanwhile, the ISM non-manufacturing index for September jumped to 57.1 from 51.4, also well above the 53.0 consensus and the highest reading since October 2015. There was also positive news in the Eurozone with Germany’s industrial production surging 2.5% month-on-month in August versus the 1.0% consensus. The Eurozone’s manufacturing PMI also rose to 52.6 in September from 51.7 in August, although this figure was in line with the consensus and initial estimate.

TRUMP’S CAMPAIGN FINALLY TRUMPED?
Trump’s election campaign took a further hit over the weekend when a video of ‘locker room’ comments was released, and a number of senior Republicans withdrew their support. Trump hit back during the second TV debate although policy was left to one side and personal attacks dominated the discussion. Trump has recovered from lows such as this before and his performance in the second debate was seen as an improvement. However his ratings in the polls has now fallen to 42.9 against Clinton’s rating of 47.5. Has he run out of time to pull back ground?

PORTFOLIO ACTIONS

Our tilt towards China in particular as part of Asian focus on Emerging Markets equities looks to be playing out well. China’s economic data appears to have stabilised, and the recent local rhetoric about reigning in the property market will soon be able to bite. Last time there was a crack down on real estate, equity markets surged as speculative money left the property market.

Meanwhile, Sterling has ben driven to even lower levels on the back of the view that EU negotiations will focus on either a hard Brexit or a very hard Brexit – nether of which are supportive of business or the City of London. Our foreign currency positions help shield portfolios in either of these scenarios.

THREE ANNOUNCEMENTS DUE THIS WEEK
12 October – EU Industrial Production // 14 October – US (Core) PPI // 14 October – UK Construction Output YoY.

Ahmer Tirmizi
Investment Manager

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SOURCES: BLOOMBERG; FIVETHIRTYEIGHT; 7IM

The value of your investments and the income from them may go down as well as up, and you could get back less than you invested.
The value of your investments and the income from them may go down as well as up, and you could get back less than you invested.

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