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Markets bounced in July despite dramatic economic and political events. Inflation surged around the globe and growth forecasts plummeted. The day after a dramatic loss of confidence led to Boris Johnson’s resignation as British Prime Minister, Japan’s longest-serving former prime minister, Shinzo Abe, was murdered in a country with one of the lowest murder rates in the world. This was followed by Italian Prime Minister Mario Draghi’s resignation, dumping Italian politics into chaos after a fracture in his unity coalition. Global equity markets fell early in the month, and small caps and emerging market stocks retreated by as much as the median fall in recessions over the last half century. Read more >>
Global markets sold off sharply in June. The US officially entered bear market territory as the Fed tightened the base rate by 75bps (0.75%) – its biggest hike since 1994. The ensuing sell-off resulted in US markets falling 24% from January peaks and put one topic on every talk show: recession. Fed Chair Jerome Powell’s stated aim of 3.4% base rates in the US by year end caused business sentiment to sour. These sentiments were echoed globally as the World Bank again revised its global growth outlook for 2022 down to only 2.9%, down from April’s 3.2% estimate and January’s 4.1% estimate. Read more >>
March saw central banks, surging prices and global investor enthusiasm for China compete for our attention with the atrocities on the ground as the war in Ukraine rumbled past the one-month mark. President Putin’s invasion ousted Covid as public enemy number one as the somewhat shell-shocked analysts of the world recalibrated their global macro-economic stances. The war served as a reminder of the US’ precarious policy position, with Jerome Powell’s Fed stuck between a rock and a hard place. The situation in the US is mirrored by much of the world, as inflation risks run away on the back of an impending global energy-cost crisis and soaring food prices, with the UN World Food Price Index hitting an all-time high. The Russian contribution to world energy output risks the weaponisation of oil and gas in a game of sanctions, while Chinese policy makers promised “whatever it takes” to set China up for success on the back of strong fundamentals. Read more >>
The IMF has cut its global growth forecasts and raised inflation forecasts, never a good combination. Supply-chain disruptions and rapidly rising energy costs are providing upside risks to inflation and downside risks to growth. Energy is currently at the centre of the perfect storm. We do not believe that the current price of energy will have a significant negative impact on the economy, but it will cause further volatility. China’s electricity consumption is at peak levels due to global demand for goods as Covid restricts services spend. China banned Australian coal imports following a diplomatic fall out, even as flooding and air pollution targets have reduced China’s coal production. China has stepped up its purchases of natural gas from Russia, who in turn has taken advantage of Europe’s natural gas shortage (due to lower wind-driven electricity and a cold snap in autumn that has seen increased demand for heating) to negotiate the approval of Nord Stream 2, so most of the supply/ demand imbalance is short term. The pipeline has gained more prominence as Europe faces a gas-supply crunch that sent prices to record levels last month. Read more >>
The United Nations Secretary General António Guterres has just proclaimed a “code red for humanity.” A landmark climate change report from the UN’s Intergovernmental Panel on Climate Change (IPCC) warns that Earth will warm by 1.5°C without drastic large-scale emissions reductions. The past decade was hotter than any period in the last 125 000 years, and carbon dioxide (CO2) levels are at their highest in two million years. Achieving viable targets requires the whole world to be at net-zero by 2050, and the UN warns that its findings should be a “death knell for coal and fossil fuels”. Coal-fired power stations contribute to global warming through CO2 emissions, but they also produce sulphates, which (while poisonous) the IPCC estimates actually reduce global warming by up to 0.5°C. While the transition to green power is a must, the real win is in reducing overall energy intensity. World energy usage per unit of GDP has consistently fallen over the last 25 years and is forecast to continue falling. Read more >>
Global bond yields plunged in July on the back of concerns about slowing growth, a hawkish US Fed and the spread of the Covid-19 Delta variant. While growth is slowing (China peaked last year, the US earlier this year and Europe is likely peaking now), it is coming off a very low base. The recovery will slow but remain strong, and while the Delta variant will delay the recovery, the global economy will still transition to a more sustainable up-cycle. The uncertainty created by the Delta variant will allow central banks to provide more liquidity for longer, and over the next six to twelve months we believe bond yields will continue to rise with global economic growth. Read more >>
After another solid return in April, should we heed the old adage, “Sell in May and go away”? Believed to be an old English saying, the phrase originally stated: “Sell in May and go away and come on back on St Leger’s Day”. Traders would leave the city of London in the hot summer months and return for the St Leger Derby in mid-September. Today, it is used to refer to the historically weaker performance of equities during the middle of the year. Read more >>
Markets are up a roaring 13% in the first quarter of 2021 but with such a swift rally, the question of a bubble arises. Unfortunately, a market bubble is a phenomenon best identified with hindsight. Having said that, there are bubble characteristics that you can watch out for, such as exponential price movement, extreme valuations, retail leverage and a “this-time-itsdifferent” investment case. Looking at price action, the only truly exponential moves seem to be linked to digital innovation and ESG. Since 2014 cryptocurrencies have risen by a factor of 160, innovation stocks are up six times, special purpose acquisition companies (SPACs) and solar energy have tripled while European renewables have doubled. Read more >>
February saw the best market upswing since the 1930s: the S&P 500 is up 75% from its Covid lows, just behind the bull run that followed the lows of June 1932, which peaked at 78%. Markets were driven by the expectation of more stimulus to drive growth, with Biden’s $1.9 trillion fiscal package widely expected to be passed by Congress, lifting US and global growth and inflation expectations. Read more >>
Globally, gaming company GameStop has stolen the limelight, worrying fundamental long-only investors while terrifying the hedge fund industry, who are the largest short sellers. Populism has hit capitalism in its backyard: gamers and Reddit users basically decided to start buying up GameStop Corp stock, driving prices up and digging a significant hole in the pockets of hedge funds that had taken short positions on the stock. Between 20 January and 26 January, GameStop’s stock value leaped from just over $35 a share to north of $140 a share. By 27 January, it had hit new highs of over $325 a share and had increased more than 8 000% in the space of a few months. Read more >>

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