Market News

Market update - October 2018

A summary of our current economic and market views

01/10/2018

Trade slows global growth
Global growth forecasts have been downgraded in 2018 and 2019, reflecting the escalation and persistence in trade tensions and a slowdown in global trade activity. However, despite these downgrades, the level of growth remains reasonable, buoyed by the US which has benefited from supportive fiscal policy. President Trump’s package of tax cuts has fed robust spending, resulting in strong corporate earnings and US equity market outperformance. Stronger US growth has also led to interest rate increases and dollar strength which, in turn, has negatively impacted sentiment in emerging markets.

Geopolitical risks create the potential for volatility
Ongoing US-Chinese tensions have already dampened trade; and show no sign of reaching a conclusion. We expect the dispute to be prolonged, with a significant risk that all trade between the two nations will be subject to tariffs by the end of next year. The US mid-term elections in November could also be a source of volatility for markets. Closer to home ,the ongoing Brexit negotiations continue, with little clarity on the outlook post 29th March 2019. Sterling is currently acting as a ‘Brexit Barometer’, strengthening if the probability of a ‘deal’ increases, and weakening if ‘no deal’ is perceived as the most likely option.

Portfolio implications
Rising inflationary pressure and the gradual unwinding of monetary support has meant that bond yields in the UK and US have moved upwards. We expect further yield increases and remain underweight bonds. Equity markets have benefited from strong earnings growth, particularly in the US, and remain supportive. However, we recognise the potential for volatility, with both the age of the bull market and the geopolitical backdrop suggesting diversification could bear fruit in coming months. As such, where appropriate, we hold property for the attractive income characteristics, absolute return for a lower volatility return stream and seek inflation protection from infrastructure and commodities.

Author

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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