Market update - July 2018

The charities team shares our current views on the markets.


Downgrading global growth expectations

Although global growth remains relatively robust, we have slightly downgraded our forecasts for this year and next.  Data shows that 2018 did not get off to a particularly strong start and the rise in the oil price continues to act as a headwind to growth.  In the US, the oil price increase will cost the consumer about $60 billion. Of course, consumers are already saving $120 billion thanks to President Trump’s tax cuts, but this means that half of their savings will go toward paying for costlier gasoline. For those in the lowest 20% income bracket, higher gasoline prices more than offset the gain from tax cuts.  Higher oil prices will push up inflation and we have raised our global inflation forecast to 2.7%.   Although we continue to expect another year of expansion for the world economy, our forecasts indicate a more ‘stagflationary’ period ahead.

Trade wars influencing monetary policy?

The past month has brought a striking divergence in monetary policy across the globe.  In mid-June, the US Federal Reserve (Fed) raised interest rates and increased its projections for future rate rises. The following day the European Central bank (ECB) surprised markets saying that interest rates would "remain at present levels at least through the summer of 2019".   The desire to keep the euro competitive is an unspoken but important factor as President Trump escalates his trade policy.  Europe has got off relatively lightly so far, with tariffs being implemented on steel and aluminium which amount to just over $7bn of EU trade, but more is threatened. This compares with tariffs on $50bn of Chinese exports to the US, on top of steel and aluminium tariffs.   China recently announced an easing in monetary policy through a cut to the ‘reserve requirement ratio’.  These differences in monetary policy have led the dollar higher, amplifying stresses in the emerging markets.  Continued trade policy escalation would add to inflationary pressure and reduce global growth, but President Trump will need to be conscious that more cars are sold by General Motors in China than in the US, and that the Chinese have twice as many iPhones.

Portfolio implications

Trade wars and oil price rises have led to increasing volatility in currency and commodity prices, although corporate earnings have remained relatively robust to date.  We maintain our position in equity markets, to benefit from earnings growth, and prefer broad global exposure.  Conventional bond markets remain unattractive in an environment of rising inflation.  We prefer to diversify into alternative assets, such as absolute return, infrastructure and property, where possible, to reduce our reliance on equity markets as the main source of returns.  We expect oscillations in markets, whether provoked by politics, trade wars, sentiment or economic shocks.  After a significant period of growth in asset prices, now is the time to be actively managing risk in portfolios and we remain alert to changing circumstances on behalf of our clients.


The opinions contained herein are those of the author and do not necessarily represent the house view. This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Cazenove Capital does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Cazenove Capital has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Cazenove Capital is part of the Schroder Group and a trading name of Schroder & Co. Limited 12 Moorgate, London, EC2R 6DA. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. For your security, communications may be taped and monitored. 

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Achieving your charity's investment objectives takes time and thought. To find out how we can help you please contact:

James Brennan

James Brennan

Portfolio Director