Active investment commentary & analysis

Mixed macroeconomic news for Europe

The positive mood seen for European equity markets at the start of 2019 continued in February as a host of positive and negative news-flow refused to push markets off course. The seemingly never-ending US-China trade talks continued unabated but by month end no further clarity could be detected. President Trump’s efforts to resolve the North Korean issue certainly saw no resolution as talks were abandoned with no agreement. By comparison the China trade talks now appear more amicable with the Chinese Premier even suggesting the country would “substantially” expand its purchases of US made goods. Unfortunately for Europe the atmosphere was more hostile when President Trump ordered a review of automotive imports suggesting this all important industry may be a security concern. With declining car sales seen in many markets this was just another reason to send the whole sector, including suppliers, tumbling, although many of the better quality names saw a good rebound before month end. Overall the macroeconomic news was mixed for Europe. Despite both service and manufacturing PMI’s not only coming in better than expected for January both remained above 50 suggesting a Eurozone economy still in expansion mode. Despite this the ECB chose to downgrade its GDP growth expectations for 2019 from +1.9% to +1.3%. Perversely such news may eventually boost European equity markets as the ECB are already hinting at a new round of cheap loans for banks under a renewed LTRO programme. For once Italy saw some market friendly political news with strong gains for Matteo Salvini’s centre right party in regional elections at the expense of the more radical 5 Star Party. The UK remained in Brexit mire with the EU standing firm claiming both the withdrawal agreement and the Irish backstop were non-negotiable. As we move ever closer to the March 29th deadline this dangerous game of poker presents an omni-present risk for the whole of Europe as well as the UK.