Active investment commentary & analysis

Still room for optimism for equity markets

Despite still no resolution to either the Brexit debacle nor the US/China trade spat there was still room for optimism for equity markets in March 2019. In Europe, matters were not helped by continuing gloomy macro-economic data. PMI data for manufacturing remains unremittingly bleak and firmly in contraction. The largest European economy, Germany, is a large contributor to this negativity and as a nation is more susceptible to the general global slowdown. The OECD has acknowledged this by downgrading their GDP growth forecast while the ECB followed suit with European growth now seen at only +1.1% for 2019. Even this number is predicated on a second half recovery. Such a recovery is something we are hearing about from the managements of European companies although tellingly follow up questions on order or revenue visibility often prompt a feeling of hope rather than fact. The ECB is, however, taking measures to ensure a continuing flow of finance by, amongst other things, holding rates at current levels and extending long-term loans to banks (TLRTOs). Nevertheless, a number of banks underperformed over the period, particularly those domiciled in Scandinavia, as the money laundering scandal linked to the Baltic states gathered pace. China signalled a similar approach to the ECB in recognising the need for further stimulus measures, as well as confirming the previously announced tax cuts. That was overshadowed by the on-going trade talks where no official announcement was seen in March, although rumours of a compromise surfaced with a statement that the U.S. would delay any further increases to tariffs while talks continued. Falling in line with the ECB and China, the US Federal Reserve, as expected, confirmed there would be no rate increases for the remainder of 2019. An inverted US yield curve heightened fears of an impending recession but was not enough to push equity markets off course. And neither did Brexit. Primarily because it didn’t happen. With the March 29th deadline now extended to April 12th and the UK parliament still split as to where to go next.