Market review

Market perspectives - Paul Niven

Paul Niven – manager of F&C Investment Trust – discusses some of the key economic trends.
November 2019

Paul Niven

Managing Director, Portfolio Manager and Head of Portfolio Management, Multi Asset Solutions


Paul Niven – manager of F&C Investment Trust – discusses some of the key economic trends and argues that prospects for equities appear reasonable.

Central banks on the front foot

With inflation relatively subdued and amid concerns over economic growth, central banks are adopting a more accommodative policy stance. July saw the Federal Reserve (Fed) cut rates for the first time since 2008. They cut again in September as did the European Central Bank (ECB) who also  relaunched their programme of quantitative easing.  Central bank policy looks set to provide support to equity markets for some time to come. We think the Fed are likely to ease again this year, and will stand ready to provide further support. Over in Europe, the ECB have introduced interest rate tiering and  left forward guidance on further rate cuts and QE open-ended, with the possibility for further easing, although the benefits may be limited.  Central banks around the world, including in EM, are reducing rates.


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Trade tensions

Disagreement between China and the US remains an influence on both sentiment and markets. After a temporary truce in July, tensions ratcheted up again in August when President Trump announced more tariffs (later delayed till December) which prompted China to halt agriculture purchases (recently restarted) and let the yuan weaken past the seven per dollar level. Whilst a full resolution seems some way off tensions eased in September with delays on tariff implementation and the scheduling of further talks.

Economics – the state of the nations

In the US, the consumer remains resilient and despite the fading boost from tax cuts and a manufacturing sector in recession, the US economy stands in reasonable shape.  Europe’s economy is struggling, and data continues to disappoint.  Weakness in Germany’s manufacturing sector – particularly among its carmakers and their poor sales is at the core of problem. Brexit continues to weigh on sentiment around the UK, but the economy’s performance remains sluggish rather than tipping into recession. Amidst all the uncertainty the UK consumer is standing strong. Trade tensions and slowing global growth have impacted on emerging market economies but a cut in US rates and low domestic inflation provide support. Whilst we believe the global economy is slowing, we feel fears of a major recession are overdone.

Equities set to maintain progress?

By some measures the past decade has seen the longest uninterrupted economic expansion in US history and the longest bull market ever. Equity investors have enjoyed a period of extraordinary returns, following the Global Financial Crisis. Going forward we expect equity markets to remain supported, assisted by accommodative Central Bank policy. Investors have so far viewed the dovish move by the likes of the Fed and ECB positively, considering the reduction of interest rates as warranting higher valuations on future earnings, despite the increased risks. Noise at the macro and political level continues and can be expected to linger as trade negotiations, protests in Hong Kong and Brexit drag on and we should expect volatility to remain elevated. We think equity markets will continue to deliver reasonable returns for investors until the next economic and earnings downturn. While we do not foresee this as an imminent risk, investors should prepare for the end of the long bull market.

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