Over the week, recessionary fears continued to weigh heavily on equity markets as trade uncertainty and deteriorating economic health remained key themes on the minds of investors. After little new developments emerged from the much anticipated Jackson Hole Economic Symposium in the US and given low expectations for the G7 Summit in Biarritz over the weekend, it appeared that we could be heading towards a relatively flat week for economic news, however hopes for a calm week were soon dashed by Xi and Trump’s efforts to dial up the rhetoric in US-China trade tensions and Boris Johnson’s decision to prorogue parliament for a month in the lead up to the Brexit deadline.
US-China Trade Tensions
As we approach the end of the month, the countdown to new tariffs on 1st September and 1st October have begun, with 15% tariffs on $110 billion of Chinese imports expected to come into effect in September and 30% tariffs on $250 billion to be introduced in October. This comes after China ratcheted up trade tensions earlier on Friday, unveiling plans for retaliatory tariffs on $75 billion of US goods. China’s retaliation was swiftly met with an announcement of an additional 5% duty on $440 billion in Chinese goods by the US as tensions continued to boil over, increasing risk off sentiment in markets. Later in the week, both sides sought to smooth tensions, however as it stands, a trade deal remains far off, with uncertainty likely to remain in the lead up to the fresh tariffs on Sunday.
Brexit Developments
In the UK, lawmakers edged closer to a no-deal Brexit this week as Boris Johnson announced plans to suspend Parliament before taking the country out of the EU on 31st October, a move which could deliver another blow to the economy which is already strained by domestic uncertainty and a global economic slowdown. Opposition politicians are expected to announce counter-measures which could involve a vote of no confidence in the coming weeks, therefore Brexit-related uncertainty is likely to remain high in the lead up to the October deadline, which will translate into high volatility in UK markets and sterling movements.
For more information about this week’s Brexit developments, please see the attached Market Update document.
Slowing Global Growth
Data released this week confirmed that world trade volumes contracted again in the second quarter of the year, while forecasts indicate that trade growth is likely to remain subdued just as the US-China trade war is heating up again. According to the CPB Netherlands Bureau, world trade volumes fell by 1.4% in June, resulting in the third consecutive quarter in which trade volumes have contracted. While exports were weak in most economies, the contraction was most pronounced in Germany and China. It is clear that global growth is slowing as a result of slowing demand and trade conflict, which is expected to continue to feed through into economic weakness and reduced corporate profitability.
Positioning
Overall, while downside risks remain high, with markets moving on changing sentiment and ever shifting trade expectations alongside central bank movements, it is clear that there is further uncertainty and weakness ahead in the near term, and therefore we retain our defensive positioning. The underlying data is painting an increasingly bleak picture of economic health, and with trade concerns continuing to weigh on the outlook further, the data should not be ignored. It remains our thesis that equity markets will decline as a result of the factors outlined, therefore our portfolios are positioned to benefit from continued weakness as they have over the week.
Key events this week:
- Friday: Euro CPI and Unemployment for July, US and UK Consumer sentiment for August.
For anyone who wants further data to substantiate the position please review the attached Global Economic News Document attached and the economic data set for July also attached.
Model Portfolios & Indices
Over the week, global equity markets declined amid rising downside risks in the global economy. Markets remained highly volatile over the week as recessionary concerns remain, with investors focusing on trade and political developments as the data continues to disappoint.
Safe haven assets such as gold continued to gain over the week alongside bonds, as risk-off sentiment continues to spread within financial markets, with the US yield curve remaining inverted. Equity markets declined over the week as a result, with the intraday movements towards the end of the week reflecting the lack of direction as equity investors grapple with recessionary fears. It is clear that geopolitical tensions remain, and economic data continues to illustrate weakness in the global economy, with risks now tilted towards the downside. As the OBI portfolios remain defensively positioned with limited equity exposure and a downward tilt which seeks to benefit when equities decline, our portfolios gained over the week while the benchmark declined, with the defensive barbell within portfolios performing well.
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 decline 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. As shown in recent weeks, the capital preservation strategy is designed to remain flat when equity markets display volatility, with a defensive tilt which means that when markets do decline, the portfolios are well positioned to benefit. 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 1966, popular British rock group, the Beatles, played their last live concert in from of a paying public at Candlestick Park in San Francisco, California. The group later came together one last time for an unannounced performance in 1969 on the rooftop of the Apple building in London.
Have a great week!
Jason & Gina
Over the week, recessionary fears continued to weigh heavily on equity markets as trade uncertainty and deteriorating economic health remained key themes on the minds of investors. After little new developments emerged from the much anticipated Jackson Hole Economic Symposium in the US and given low expectations for the G7 Summit in Biarritz over the weekend, it appeared that we could be heading towards a relatively flat week for economic news, however hopes for a calm week were soon dashed by Xi and Trump’s efforts to dial up the rhetoric in US-China trade tensions and Boris Johnson’s decision to prorogue parliament for a month in the lead up to the Brexit deadline.
US-China Trade Tensions
As we approach the end of the month, the countdown to new tariffs on 1st September and 1st October have begun, with 15% tariffs on $110 billion of Chinese imports expected to come into effect in September and 30% tariffs on $250 billion to be introduced in October. This comes after China ratcheted up trade tensions earlier on Friday, unveiling plans for retaliatory tariffs on $75 billion of US goods. China’s retaliation was swiftly met with an announcement of an additional 5% duty on $440 billion in Chinese goods by the US as tensions continued to boil over, increasing risk off sentiment in markets. Later in the week, both sides sought to smooth tensions, however as it stands, a trade deal remains far off, with uncertainty likely to remain in the lead up to the fresh tariffs on Sunday.
Brexit Developments
In the UK, lawmakers edged closer to a no-deal Brexit this week as Boris Johnson announced plans to suspend Parliament before taking the country out of the EU on 31st October, a move which could deliver another blow to the economy which is already strained by domestic uncertainty and a global economic slowdown. Opposition politicians are expected to announce counter-measures which could involve a vote of no confidence in the coming weeks, therefore Brexit-related uncertainty is likely to remain high in the lead up to the October deadline, which will translate into high volatility in UK markets and sterling movements.
For more information about this week’s Brexit developments, please see the attached Market Update document.
Slowing Global Growth
Data released this week confirmed that world trade volumes contracted again in the second quarter of the year, while forecasts indicate that trade growth is likely to remain subdued just as the US-China trade war is heating up again. According to the CPB Netherlands Bureau, world trade volumes fell by 1.4% in June, resulting in the third consecutive quarter in which trade volumes have contracted. While exports were weak in most economies, the contraction was most pronounced in Germany and China. It is clear that global growth is slowing as a result of slowing demand and trade conflict, which is expected to continue to feed through into economic weakness and reduced corporate profitability.
Positioning
Overall, while downside risks remain high, with markets moving on changing sentiment and ever shifting trade expectations alongside central bank movements, it is clear that there is further uncertainty and weakness ahead in the near term, and therefore we retain our defensive positioning. The underlying data is painting an increasingly bleak picture of economic health, and with trade concerns continuing to weigh on the outlook further, the data should not be ignored. It remains our thesis that equity markets will decline as a result of the factors outlined, therefore our portfolios are positioned to benefit from continued weakness as they have over the week.
Key events this week:
- Friday: Euro CPI and Unemployment for July, US and UK Consumer sentiment for August.
For anyone who wants further data to substantiate the position please review the attached Global Economic News Document attached and the economic data set for July also attached.
Model Portfolios & Indices
Over the week, global equity markets declined amid rising downside risks in the global economy. Markets remained highly volatile over the week as recessionary concerns remain, with investors focusing on trade and political developments as the data continues to disappoint.
Safe haven assets such as gold continued to gain over the week alongside bonds, as risk-off sentiment continues to spread within financial markets, with the US yield curve remaining inverted. Equity markets declined over the week as a result, with the intraday movements towards the end of the week reflecting the lack of direction as equity investors grapple with recessionary fears. It is clear that geopolitical tensions remain, and economic data continues to illustrate weakness in the global economy, with risks now tilted towards the downside. As the OBI portfolios remain defensively positioned with limited equity exposure and a downward tilt which seeks to benefit when equities decline, our portfolios gained over the week while the benchmark declined, with the defensive barbell within portfolios performing well.
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 decline 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. As shown in recent weeks, the capital preservation strategy is designed to remain flat when equity markets display volatility, with a defensive tilt which means that when markets do decline, the portfolios are well positioned to benefit. 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 1966, popular British rock group, the Beatles, played their last live concert in from of a paying public at Candlestick Park in San Francisco, California. The group later came together one last time for an unannounced performance in 1969 on the rooftop of the Apple building in London.
Have a great week!
Jason & Gina
