Market update - June 2019
A summary of our current economic and market views
04 Jun 2019
New tariffs trigger renewed volatility
We have expected volatility to return to markets and this has materialized over the past month. The trigger was the escalation in global trade tensions, with the US imposing tariffs on Chinese and – unexpectedly - Mexican goods. While this may be a negotiating tactic to secure political concessions, the move emphasised the unpredictable nature of current US policy making and will do little to help business or consumer confidence. The developments will likely renew concerns about a US recession in 2020 and increase the downside risks to our outlook for positive but slowing global growth this year and next.
Expectations of rate cuts
Throughout 2019, markets have been supported by the US Federal Reserve as it has retreated from its policy of increasing interest rates. If growth does slow significantly as a result of trade tensions, it is likely to act to support the economy and cut interest rates. Bond markets are now clearly expecting such a move, potentially this year as the inflation outlook remains contained despite continued strong employment figures.
Brexit resolution remains elusive
Closer to home, political developments have opened the door to a wider range of Brexit outcomes. As a result, sterling could become more volatile. Despite valuations looking attractive, we think that domestically-exposed UK equities are unlikely to make headway while Brexit uncertainty persists – which could be for many months.
Our charity investment portfolios remain invested in equity markets, to benefit from earnings growth; but we have been moving more defensive and taking profits where appropriate. We are prepared for higher levels of market volatility and our allocation to cash allows us to take advantage of investment opportunities that may arise as a result. We also remain well diversified, helping to reduce risk. Where appropriate we have exposure to alternative investments which can offer positive returns should other asset classes struggle. We retain our exposure to UK commercial property which generates attractive income in choppier markets.