Having seen a decent recovery from the lows at the end of last year, global stocks appear to have run out of steam, if Friday’s sharp declines are anything to go by, and this morning’s activity in Asia and Europe have continued this negative theme.
It has been universally acknowledged for some time now that the global economy has been slowing down, given the declines at the end of last year, against a backdrop of a US central bank that appeared intent on continuing to raise rates.
While the Fed quickly resiled from this expectation this year’s recovery was always predicated on the basis that of a combination of expectations of easier central bank policy as well as a benign outcome from US, China trade talks, and a rebound in economic data, would end up supporting valuations.
An endpoint to US, China discussions may still happen, and the first one already has, given last weeks Fed meeting confirmation that they are probably done on the rate rise front, however the sharp slide seen in last week’s economic data out of Europe appears to have put the skids under any remaining optimism that we might avoid a possible global recession.
The sharp slide in yields at the end of last week merely serves to highlight while some central banks do have some ammunition in the monetary policy toolbox, like the Federal Reserve, there are others that much less, and the gradual flattening of yield curves generally would appear to suggest that bond markets think the global recover is starting to roll over.
European markets have got off to a negative start this morning, following on from the heavy declines in the US on Friday and Asia today, with US markets not expected to benefit from yesterday’s news that appears to exonerate President Trump and his campaign team from colluding with Russia.
In M&A news Fiat shares have enjoyed a modest bump on continued reports that Peugeot is said to be interested in making a bid.
Satellite maker Inmarsat is sharply higher after the company on reports the company had accepted an offer of $3.4bn from a group of private equity companies and return to private ownership.
In the UK the pound continues to buffeted by the ebb and flow of events surrounding Brexit. We still appear no nearer to a parliamentary solution as to what to do with Brexit, with talk swirling over the weekend that the prime minister might be forced to step aside. This appears to be only a matter of time, with the only question being around the timing.
While there is some relief that the so-called cliff edge of 29 March has been delayed for two weeks, we still have the problem of what type of consensus deal MPs can rally around. We could get a better idea of where the land lies when MPs hold a host of indicative votes, starting today with the chance that Theresa May's withdrawal deal may get a third go.
The pressure on MPs increased over the weekend with a march in London on Saturday, estimated to have drawn around 1 million people calling for a new referendum, while 5 million people have so far signed a petition to revoke article 50 and remain in the EU. While an impressive number, it does make you wonder where all these people were at the 2017 general election, when the Liberal Democrats needed their votes as the sole pro-remain party in parliament. In that election, the Lib Dems only received 2.3m votes in total, a mere 7.4% share of the vote and less than half of the 5 million people who have so far signed the revoke petition, and they continue to poll poorly.
In the US, equity markets look set to open lower despite an initial pre-market pop on the news that the Mueller investigation into Russian collusion at the 2016 presidential election found no evidence that President Trump’s campaign team had colluded with Russian state actors to influence the result.
Concerns that the US economy has hit the top of its economic cycle and is heading towards a possible recession has seen US bond markets push higher, sending yields sharply lower with the US 10-year yield pushing below the 3-month yield. As a leading indicator when this has happened in the past a recession has usually followed, though investors tend to look more at the spread between the 10-year and the 2-year yield, which is still in positive territory.
Investors will also have their eyes set on Cupertino, California today with Apple management set to unveil a grand launch into video streamlining. The event named 'It’s Showtime' is expected to launch a news subscription service as well as launch a service to take on Netflix and Amazon, as Apple executives look to boost their services business even further and offset the declines that we’ve started to see in hardware revenues.
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