Welcome to Market Musings – a lighthearted commentary issued from time to time, summarising recent economic data, the drivers of stock and bond markets along with other key global developments.

US: President Trump has intensified his attack on the Fed, and he may just get what he wants – a rate cut. His rhetoric has captured the support of a generation which hasn’t seen their real wages keep pace for decades. He has also successfully transcended social and economic strata with a universal message: US hegemony is at risk. Combine those two electoral bases and a November 2020 re-election win is pretty much guaranteed.

On the corporate front, more than 15% of S&P 500 companies have reported earnings thus far. Of these, 80% have posted better-than-expected profits, but those estimates are light… forecasts are for S&P 500 earnings to fall by around 3%. US retail sales increased and consumer sentiment ticked slightly higher.  All eyes are on the Fed’s next move.

EU: Greece is back and borrowing 7-year money from international investors at 1.9% who are banging down the doors of banks to get an allocation. Oh, how short our memory is…
German sentiment darkened in July as tensions in the Gulf intensified and worries around the impact to exporters of the trade wars continued. Meanwhile the French Government is attempting to reform its pension system. We say, “Bonne chance Monsieur Macron”. Finally, the dovishness seems to be spreading amongst global central banks as investors expect a rate cut from the ECB in the very near term.

UK: We sometimes cheer when economists get it wrong and last week was one such occasion. Forecasts were for a decline of 0.3% in UK sales volumes. But they grew 1.0% month on month, spearheaded by purchases of furniture, lighting, paint, glass and floor coverings. Brexit or no Brexit, it appears that the British are getting their houses in order. And on the topic of housing, London home prices have declined by some 4.4% over the past 12 months. However, as prices fall, LTVs (Loan to Values) rise and the proportion of UK mortgage lending at LTVs between 90% – 95% has hit pre-crisis levels. Is the BoE worried? Not really, as the ability for borrowers to service their mortgages remains very manageable.

Japan: Economic data was pretty weak, exports down, inflation disappointed and manufacturers’ business confidence declined. However, the elections which took place on Sunday are likely to ensure political stability and support for Prime Minister Shinzo Abe’s agenda. This bodes well for business and consumer confidence.

China: “The Chinese use two brush strokes to write the word ‘crisis.’ One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger-but recognise the opportunity.” Crisis? What crisis!? Because it seems opportunities are aplenty. China’s economy grew by 6.2% in the second quarter of 2019 (as the government successfully moderates growth). This comes on the backdrop of an almost 10% jump in retail sales jumping, industrial output over 6%, fixed asset investment near 6% and rising house prices. Trade wars taking a bite? Doesn’t feel like it.

Arbuthnot in the Press

If you are interested in hearing about Arbuthnot’s views on the recent volatility in the currency markets, please find some of our comments which were published in The Sunday Times’ Raconteur: https://www.raconteur.net/finance/low-fx-volatility

We will be a guest host on Bloomberg TV this Wednesday 24 July from 9am – 10 am. We expect to share views on interest rate policy, China/US trade wars and special opportunities in the markets.

2019 Arbuthnot Mountain Climbing Charity Challenge

Finally, many of you will already be aware that later this week Gregory Perdon will attempt the 2019 Arbuthnot Mountain Climbing Challenge – click here to find out more.

Gregory Perdon
Co-Chief Investment Officer
Arbuthnot Latham & Co., Limited

Eren Osman
Co-Chief Investment Officer
Arbuthnot Latham & Co., Limited