Market update - September 2018

The charities team shares our current views on the markets.


Softer global economic growth
The summer lull continues and we see further evidence of a soft patch in the world economy in the coming months. We have downgraded economic growth expectations for this year and next, with the ongoing war of words between the US and China over trade adding to uncertainty and limiting capital investment. This also pushes up our US inflation expectations and is supportive for the dollar. We expect interest rates in the US to reach 3% next year.

Brexit uncertainty
The European economy is vulnerable to slowing global trade, with ongoing uncertainty over Brexit adding to concerns. We’ve downgraded our UK growth forecasts, and note that aggregate demand has now contracted for two consecutive quarters – a technical recession. UK inflationary pressure has reduced, as weak domestic demand has limited the ability of firms to pass on cost increases, but more recent falls in sterling will have an inflationary impact. Sterling is likely to be a beneficiary of a Withdrawal Agreement, if reached, but could be heavily penalised in a no-deal Brexit scenario.

Portfolio implications
Volatility in currency is likely over the coming months, with the binary outcome of Brexit negotiations making it difficult to make predictions. Consensus suggests more downside risk in sterling than upside at current levels and so we continue to hold overseas assets in UK Charity portfolios. Equities continue to demonstrate earnings momentum but are no longer ‘cheap’ so are more vulnerable to changes in sentiment. Whilst the rise in yields leaves bonds looking attractive relative to recent history, we continue to be concerned about rising inflation and interest rates. Alternative investments offer diversification benefits, and we hold property, infrastructure, commodities and absolute return where appropriate.


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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James Brennan

James Brennan

Portfolio Director