Good day. It’s been all eyes not only on the markets, but on the Royals more recently too, and following last week’s announcements, most notably was certainly that of the royal birth of Prince George Alexander Louis to William and Kate. Congratulations!
With August just around the corner, let’s take a quick peek at last week where most of Q2 earnings are all but wrapped up. On a whole, earnings reports were good, maybe not necessarily great, but good enough for a majority of companies to report better than expected numbers. With reports neither on the extreme nor other side of the fence, as a result, the markets remained fairly unchanged last week. The UK FTSE ended the week about 1% lower, while the Hong Kong Hang Seng ended up almost 2%, and the US S&P pretty much ending right where it started the week.
Our prediction last week that movements would remain quite small seems to be holding true (for now) as Q2 data reinforces the current levels of most assets, but, at the same time, doesn’t support a strong movement in either direction following results. This doesn’t mean that everything is fine and dandy as the question of whether the global economy is strong enough to sustain itself without government stimulus still remains a big issue. The US FED will meet this week but it’s highly anticipated to be a non-event as the FED is expected to defer any decisions to a later date. Even though they announced earlier this year that they want to reduce stimulus programs, the FED still doesn’t have a strategy or process to do this without causing distress or raising fear in the markets.
The FED has been quite diligent this year about calming markets around stimulus concerns saying they will not reduce them if the economy can’t sustain itself, but it still doesn’t provide them with a strategy, and at some point, they’ll have to make a decision. On the bandwagon of expectations however, we should expect this decision to be adjusted, delayed, altered, and changed along the way as they’ll likely walk this ‘fine-line’ as long as they can. In addition to the US, both China and Europe have been facing their own issues and debates which are also centred around their credit lending and stimulus efforts, and although they may not carry as large an impact as the US, they will carry an impact nonetheless. Given this aspect, should any major changes be announced or proposed, it could influence the global economy as markets remain somewhat reliant on these programs, so we’ll continue to monitor this and report back on any announcements or market impacts this may or may not have over the coming weeks. But for now it remains that all eyes are on the US at this time.
Taking in to consideration the uncertainty and lack of strategy with the various global governments and their policy for stimulus & intervention we’re currently seeing, we do believe now is the ideal time to take a very balanced approach to the markets. The disconnect between emerging equities and developed equities that we mentioned in last week’s Money Matters still remains, so investors will want to have exposure to both. Commodities took a pause on their recent rises due to lower manufacturing numbers reported out of China, and although US and Europe manufacturing picked up slightly we know that China’s manufacturing numbers are still a big piece of the global pie. It’s difficult to say when commodities will get their upward rebound but over the past few months it does seem that the downward slide in price has halted, with prices now remaining in a tighter range. Whether investors think commodities have reached their bottom, or simply whether commodities look attractive at their current prices, something has encouraged commodity prices to remain rather stable. And it certainly isn’t manufacturing or production numbers as they continue to print weak results so be sure to keep an eye on this!
Moving into the week ahead, we would expect another small range of movements as investors digest the last of the Q2 numbers. As long as the US FED doesn’t come out with any shocking news at their meeting this week, which we very much doubt will be the case, it should to be business as usual and a rather light week ahead in the news and data department compared to the past few weeks.
For Austen Morris Associates’ investors – talk with your advisor about any repositioning to take advantage of markets at this time. For more information about Austen Morris Associates please visit our website.
Darren Cox
Co-Head of Portfolio Management
Austen Morris Associates Wealth Management & Investment Team
www.austenmorris.com
