Active investment commentary & analysis

Political considerations primary driver in equity markets volatility

Global equity markets were volatile over the month with political considerations once again the primary driver.

The prospects of an imminent trade deal between the US and China continue to influence global markets on a daily basis. We believe that some form of limited agreement is likely and are positioned accordingly. In the UK, the seemingly never-ending saga of Brexit continued with a withdrawal agreement tantalisingly slipping through the government’s grasp. The government has now settled on a General Election as the mechanism to attempt to break the current impasse, aiming to change the parliamentary arithmetic and enable the passage of the withdrawal bill. The potential pitfalls of this approach are obvious and the unintended consequences could be significant.

Away from politics, the performance of the US and the rest of the developed world continued to diverge. US real GDP grew at close to trend of 2% in the third quarter of the year. This contrasts with sharply slowing growth elsewhere. Concerns over the decelerating global economy led the Federal Reserve to cut rates by 25bps despite the S&P500 being at an all-time high. Despite the interest rate cut the dollar remains close to its highs reflecting the relative strength of the US economy. Recent global economic data suggests a degree of stabilisation and led to a further rebound in value stocks relative to growth.