Hedley Market Commentary - July 2019

Global equity markets continued to power ahead in June, with most major global indices participating in the strong rally. In fact, the Dow Jones Index recorded its best June gain since 1938 and the S & P 500 its biggest 1st half gain in 20 years.

Maintain the current economic expansion

June’s sharp gains came as the Fed opened the door for easier monetary policy later this year. The Fed said earlier this month it will “act as appropriate” to maintain the current economic expansion. This lifted market expectations for a July rate cut to 100%. In addition, the prospect of further central bank stimulus in Continental Europe to counteract the anaemic economic conditions also gave a boost to equity prices there.

Europe led the way

Of the 4 major equity regions, Continental Europe led the way over the quarter with a gain of 9.6% in sterling terms, next was the US +6.8% followed by Japan +3.3% and finally the UK up a disappointing 2%. In bonds, UK Gilts fared reasonably well, recording a gain of around 2.5% with index linked up much the same over the quarter. Across the globe, investors are seeking out returns wherever they can find them as economic conditions are becalmed and interest rates everywhere appear set to remain low for some considerable time.

US and China soothing words

In the US, all eyes are now focused on the trade war between the US and China as both sides strive to bring a satisfactory end to this dispute which could have very real negative consequences for global trade if it continues and escalates from here. Leading up to the recent G20 meeting of Heads of State, markets were on edge because President Trump had suggested that he would be deciding whether to hit China with more punitive trade taxes if he didn’t like what he heard from President Xi. On the other hand, there had been sporadic hopes that the meeting could have resulted in the announcement of a framework for some sort of long-term deal. As it turned out, the dispute appeared to be put on hold, with talks between the two nations set to re-start and with no new tariffs being introduced by either side and soothing words from both leaders. However, this dispute still has the potential to re-ignite, especially with the erratic nature of the US president.

In the UK

In the UK, the headlines continue to reflect the uneasy political backdrop and with a Brexit conclusion as uncertain as ever. As the Conservative leadership contest nears its conclusion, whoever the next Prime Minister is will still have a mountain to climb to negotiate any Brexit Withdrawal Agreement and the possibility of a snap general election now appears more likely than ever. However, even a general election may continue to stifle any Brexit progress as the outcome is just as likely to produce a parliament where no party or grouping can make headway due to the split nature of the parties.

The next few months could prove politically volatile while financial markets watch and react from the side-lines.

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