OCM Commentaries

Market Commentary – 23rd May 2018

By June 4, 2018 October 8th, 2019 No Comments

Market Commentary – 23rd May 2018

As another week draws to a close and we in the UK look to embark on another bank holiday, signs that the world has forgotten Q1 was awful both from a weather and markets perspective seem to be forgotten as portfolios and indices YTD rise into the black. We are though today facing some nervousness and risk off due to the issues in Italy that see no real reason to abate. As a result, today the markets are in the red again and the US$ rose across the board amid general increase in nervousness to Italy’s future government. Market participants are still waiting for Italian President Sergio Mattarella to approve Giuseppe Conte as prime minister as back room discussions seem to be endless. The Italian President still hasn’t taken his decision suggests that he is not entirely convinced Conte would fit the job. It may sound as a good thing for investors as one may assume that if Mattarella refuses to appoint Conte, the 5 Star Movement and the League would have to propose someone with an actual political base and a stronger political background. Indeed, Conte is mostly unknown, has no political experience and is therefore unpredictable – and as you know markets like predictability. There is though experience in Italy in having a technocrat running the government as was the case a few years ago with Mario Monte so it would not be a new phenomenon.

Closer to home we have this week seen the FTSE 100 reach an all-time high of 7,877.45 points, marking a fresh all-time high. It pushed past Monday’s record of 7,859.17 points, having closed above 7,800 points for the first time. The rally was precipitated with good news China’s government said on Tuesday it will cut import duties on passenger cars to 15 per cent from the current 25 per cent, sending US stock futures higher. ‘The postponement of new tariffs by both the US and China and the revelation that the latter will cut import tariffs on cars from as much as 25 per cent to 15 per cent and on car parts to 6 per cent is seen as an important step away from a trade war that could have negative implications globally. Whether Trumps tactics are positive or are working are not for us to say but the results of these negotiations does seem to be positive for the US trade deficit as long as words are carried through.

Despite the FTSE 100 breaking all time high’s the shame is that this has nothing to do with UK plc and more to do with global trade. The British economy grew by 0.1 percent on quarter in the three months to March 2018, easing from a 0.4 percent expansion in the previous period and missing market expectations of 0.3 percent, a preliminary estimate showed. It was the weakest growth rate since a 0.1 percent contraction recorded in the fourth quarter of 2012. The services aggregate was the main driver of the growth in GDP, growing by 0.3 percent and contributing 0.21 percentage points. Production continued to grow, with a rise of 0.7 percent in the first quarter, contributing 0.10 percentage points to GDP. This was driven mainly by mining and quarrying, and electricity and gas. However, construction contracted by 3.3 percent, contributing negative 0.21 percentage points to GDP. Although agriculture contracted by 1.4 percent, the contribution was only negative 0.01 percentage points due to its low industry weight.

At home the Brexit negotiations are ongoing, and we do not seem to be getting anywhere near to a deal as the Irish Border issue seems to continue to occupy agendas. Barnier has said in the last few days that GB will have to sign up to a “Norway plus” model if the country is going to answer the European Union’s Irish border demands with Michel Barnier warning it is the “only way”. The Irish border conundrum has been the Brexit negotiations most divisive, threatening to derail talks on more than one occasion as Brussels continues to demand no hard border must emergence as a result of Britain’s EU departure. EU negotiators have given Westminster until the EU summit at the end of June to produce a solution both sides are happy with but Mrs May is facing friction in her own Government when proposing any compromise. The Prime Minister is said to have won support from disgruntled Brexiteers to satisfy the EU’s demand for a “backstop” with plans which would involve the entire UK remaining in the customs union until an agreement on the border is reached.

Theresa May is rumoured to be thinking of calling an election and as a result Rees Mogg and Boris Johnson have upped the rhetoric in case they need to challenge her for the leadership. All in Europe is digging her heels in, we are weak and not been governed with any strength, due to each side of the argument having too strong a voice and if we did have an election Corbyn could become the prime minister. On a positive it was a beautiful royal wedding weekend and the sun is shining so all in the world is a wonderful place.

For further information on the global economy and data please review the attached technical update…..

Model Portfolios

Over the last week we have had a mixed bag with the US and northern Europe increase and Asia and southern Europe decrease following issues regarding a strong US$ and Italy. Most of the gains have been in the FTSE 100 which has helped the benchmark move forward again with its overweight position. With the model portfolios, these positions have been up over the past week as the equity side of the models have been building most of the growth in line with the markets. We are still defensive so are not tracking the benchmarks which hold significantly more equity than we do but at this stage of the cycle it is all about getting the balance. A few months under performance to avoid volatility is not something that concerns us over the short term.

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.

Joke of the Week

I listened to the news this morning and by god it was depressing so rather than a fact of the week I have reverted to Joke of the week. Sorry if I offend anyone…

A child asked his father, “How were people born?” So his father said, “Adam and Eve made babies, then their babies became adults and made babies, and so on.” The child then went to his mother, asked her the same question and she told him, “We were monkeys then we evolved to become like we are now.” The child ran back to his father and said, “You lied to me!” His father replied, “No, your mom was talking about her side of the family.”

As always have a wonderful week and stay safe.


Jason Stather-Lodge  CFP, MCSI, APFS
CEO & Founder
Chartered & Certified Financial Planner
Chartered Wealth Manager