Noise, Sell-offs and Recovery - Weekly market update

09 August 2019
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Welcome to our weekly newsletter, where we summarise the key market developments over the last seven days.
 

The Noise

  • Jerome Powell’s description of last week’s rate cut as a “mid-cycle adjustment” (rather than the beginning of an easing cycle) combined with the heating up of the US/China trade war to drive equities lower earlier this week. But once again after suffering due to headline news, equities have started to rally.
  • Donald Trump officially labelled China a currency manipulator as the yuan weakened significantly in the aftermath of the latest tariff announcements. We would however note that the yuan was far from the only emerging market currency to weaken against the dollar over the period...

  • Talking of currencies, sterling continued its downward trajectory over the week, but UK markets have had an interesting reaction; typically a weak pound would benefit large cap exporters with sterling cost bases and overseas currency revenue streams, but over the last month (and indeed over the last year to date) smaller, domestic names have been moderately outperforming large caps.

 The Numbers

The-Numbers-9-8-19-(1).PNG


The Nuance 

 
Markets have been contending with difficult headline news for some time now; we’ve seen sharp sell-offs after tariff discussions, Federal Reserve decisions, US payroll data and more. But each and every time, despite the numerous voices calling out a correction, equities have rallied and eventually climbed higher. Smart investors have been using these reactions to market noise to pick up and top up quality companies that they plan to hold for the long term, as we do.

And while we wouldn’t say that we are overly bullish on equities - indeed we are quite cautious in our current allocation – we do think that it is going to take a meaningful deterioration in hard economic data to move equities more than the kind of short, sharp sell-offs that we have seen this year. As it stands global growth is slow but not stagnant, despite the impact of the trade stand-off between the two largest economies in the world.

Our carefully balanced mix of assets is designed to weather a large variety of hard-to-predict market environments, but we also keep enough “dry powder” in our portfolios to be able to take advantage of short term dips that open doors to some of our favoured investments. In just the same way as a rising tide lifts all boats; sell-offs are rarely selective. This means that in periods of severe market stress, even some of the most durable and competitive businesses in the world can suffer in the short term, giving long-term investors the kind of entry points that they are always on the lookout for.

Quote of the week

 

The Future is Now”.

“We made a machine three years ago… and now we’ve crossed the Channel, it’s crazy”. French Inventor Franky Zapata
 
Global growth might be sluggish but French inventor Franky Zapata pushed us one giant leap (or gentle hover) into the future this week by crossing the English Channel on a jet-powered hoverboard of his own design. The journey took a mere twenty minutes, but Zapata was keen to point out that this is a complex piece of machinery and not quite ready for public use; “It’s not a machine for a trip down to the bakery on a Sunday morning” he told one interviewer. The inventor is now said to be working on a flying car.

Source: reuters.com

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