OCM Commentaries

Market Commentary 19th June 2019

By June 19, 2019 June 21st, 2019 No Comments

Markets gear up towards a busy two weeks

As investors prepare for a big couple of weeks ahead, key events moving markets over the last week were the Conservative leadership race, US-China trade wars and central bank movements. Over the week, intraday market movements were mixed, before reporting strong gains yesterday on the back of expectations for ECB stimulus and optimism over a potential end to the US-China trade conflict at the G-20 meeting later this month.

While we await further clarity over the coming weeks on key areas such as central bank policy, Brexit and Sino-American relations, what cannot be ignored is that the economic backdrop is declining, and as the impact of trade tensions begins to feed through into the global economy, the pace of this decline is expected to increase. From this point, while central bank stimulus tends to boost equity markets in the medium term, the stimulus must be targeted at the key problem areas within the economy, and will take time to feed through, thus not improving the near-term outlook.

For further information on economic health and monetary policy, please see the attached Market Update document.

Additionally, while equity markets have gained somewhat in June following the May sell-off, valuations remain stretched, therefore when optimism and sentiment is removed, it will become clear to investors that there are underlying risks in equity markets which must be considered. Second quarter corporate earnings are expected to reflect of this, with expectations for a 2.5% decline in earnings growth this quarter.

This week will be pivotal in giving investors further clarity on US rate movements, and in the next few weeks we will expect some clarity on the China trade war and corporate earnings expectations. In the interim, all we can do is wait, however the underlying and persistent narrative is that the global economy is coming under strain and this will be the prevailing problem until something budges. While there remains a high level of uncertainty within the global economy, the most sensible positioning remains a defensive one, and we remain confident in our current strategy and on the 2019 return outlook. Even as more central bank stimulus has been announced, nothing has changed in terms of the underlying data, and we continue to expect the economic data to prevail over sentiment as economic conditions decline, resulting in a sell off in markets in the coming weeks.

Key events this week:
• Wednesday- The Fed rate decision, the next round of votes on the Conservative Leadership.

• Thursday- The BoE rate decision, the next round of votes on the Conservative Leadership, Eurozone consumer confidence, UK retail sales

• Friday- Eurozone Services and Manufacturing PMI, US and Japan Manufacturing PMI

For anyone who wants further data to substantiate the position please review the attached Global Economic News Document.

Model Portfolios & Indices

Over the week, most global equity markets gained as investor concerns over protectionism and global growth began to ease earlier in the week, with expectations of ECB and Fed stimulus pushing the market higher. While the market initially reacted positively to this potential stimulus, our expectations are that this will be a temporary effect, with investors weighing the reasoning behind the stimulus (a deteriorating global outlook) after the initial boost. As the OBI portfolios remain defensively positioned with limited equity exposure, our portfolios gained over the week, while the benchmarks gained by slightly more due to a higher traditional equity content.

As we progress from here, it is important to recognise that we should not let benchmark performance make us feel like we have missed out on anything, because although we have in the short term, recent performance shows how quickly this can be reversed given current levels of risk and uncertainty. Overall, it is our view that markets will continue to fall over the coming months before adjusting to the new norm based on lower global growth and weaker corporate profitability. The key point here is to take a long-term view, look at the current level of uncertainty in the global economy, and remember that the portfolio is designed to minimise your exposure to risk and preserve capital. Markets are behaving irrationally, therefore the most sensible strategy is a defensive one given current market conditions.

Important Information

The data above will not directly correlate to the indices as there is always a delay in pricing because the US markets close significantly later than the European markets and the Asian markets. The data set above reflects the last close and much of the days movements will not yet be reflected in the portfolios due to pricing delays.
You cannot therefore directly correlate indices to the portfolios. The value of investments may fluctuate in price or value and you may get back less than the amount originally invested.

Past performance is not a guarantee of future performance. Performance figures quoted include the fund manager charges but exclude other fees such as adviser, custodian, switch and/or discretionary investment management fees. Unless otherwise instructed and accrued, income is reinvested into the portfolio.

This Day in History

On this day in 1991, Colombian drug lord Pablo Escobar surrendered to the police.

 

VBW

Gina & Jason

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