Active investment commentary & analysis

UK continues to confound the sceptics

Equity markets rallied as investors responded positively to a slew of economic data that suggested the global economy was beginning to show an improving trend. Cyclical stocks outperformed.

The US, UK, and European economies all showed further signs of stabilisation and/or improvement. The UK continues to confound the sceptics who had forecast that the political impasse would result in a significant slowdown. Activity does remain somewhat patchy with business investment subdued, but with unemployment low consumer expenditure is holding up. The US grew faster than expected in the first quarter but the composition of growth suggests that it will gradually slow from here. Encouragingly, Europe also showed an improvement in its performance.

US/Sino trade fears resurfaced in early May. Recent rhetoric from both sides had suggested a deal was close to being finalised and a positive outcome had been discounted by investors. The apparent breakdown in talks has therefore caught investors by surprise and injected considerable uncertainty into the process. We still think a deal is likely, but post the recent spat it is impossible to have high confidence in this view. Cyclical stocks have been hit particularly hard while investors’ desire to ‘pay up’ for stocks that offer relative stability has seen ‘quality’ outperform further.