Active investment commentary & analysis

Brexit continues to dominate the news cycle

Equity markets made further progress as economic data continued to show signs of stabilisation and central banks issued supportive statements. Technology shares and Chinese equities continued to lead the market higher.

Brexit continues to dominate the news cycle. While many plausible scenarios remain, we believe the range of potential outcomes is narrowing. Avoiding a ‘no deal’ exit is crucial for the outlook for UK domestic stocks. From that perspective, the parliamentary vote last week to avoid leaving the EU without a deal was a step in the right direction. Despite the ongoing Brexit ‘noise’ the UK economy is proving relatively resilient, with weakening business investment being offset by high employment and rising wages. The European economy, however, continues to disappoint. The degree to which this relates to temporary external factors remains open to debate. Should some of these recent headwinds reverse, then the European economy will recover towards its trend growth rate in the second half. Critical to this year’s rebound in risk assets has been a series of dovish statements from central banks, particularly the US Federal Reserve. We expect these to continue with central banks determined to show they are ‘data dependent’ and not blind to the economic risks of premature tightening. The recently reintroduced ECB’s TLTRO should help to stabilise Eurozone money supply, if it leads to higher bank lending, and ultimately into economic growth. US growth is moderating but early 2019 data signal persistent expansion.