An update on the markets from Brian Tora and our investment partners JM Finn.
Politics Rules OK
Politics are undoubtedly the main driver in markets at present. News that a deal had at last been reached between the European Union and British negotiators first stimulated a recovery in sterling, then a slump as it became clear the terms were most unlikely to receive universal approval. While the deal may have received the backing of the Cabinet, the fact remains that opposition parties are unlikely to back it and sufficient Tory MPs will probably defy their whips to ensure it fails to be passed by Parliament.
Senior resignations were not wanted by Prime Minister May, but they came swiftly and sufficient disenchantment has been expressed to cast doubt over whether this deal will succeed. A European summit is being swiftly arranged, but it is not even certain the terms of this agreement will receive approval from the 27 member states of the European Union that will need to sign it off. And Italy remains a problem for those within the single currency zone. Against this turbulent and uncertain background our own stock market has remained remarkably resilient, but sterling has suffered some uncomfortable moments.
Political influences are not confined to the UK and Europe. In the US the mid-term elections are now behind us, with the Republicans doing well in the Senate but losing control of Congress. This divide between the parties may not make much difference in terms of the President’s international agenda, but it will make reforms at home that much more difficult to accomplish.
While shares in America did little on the back of the elections, recently they have been behaving in a nervous fashion, led lower by technology giant Apple where investors are becoming increasingly uncomfortable with the outlook for iPhone sales in the future. Competition from China is hotting up and some fear saturation in this market cannot be too far away. As a result, Apple has fallen out of the trillion dollar club in terms of market capitalisation, damaging overall sentiment on the way down.
Back home Brexit may be grabbing the headlines, but other things are happening as well. On the economic front, wages in this country are now rising at their fastest rate for a decade, though there has been a modest uptick in unemployment. Should this trend continue, the Bank of England would, under normal circumstances, resume interest rate rises, but the Governor will clearly be influenced by the news of the Brexit deal and the subsequent fall out.
With the initial reaction to the terms gained by the negotiators far from encouraging, suggesting gaining the approval of the House of Commons will be a near impossible task, the future is now anybody’s guess. Investors have not been impacted seriously so far, but the case for a more international approach to investing has received a boost from recent events.
Brian Tora, who is a respected writer and broadcaster on investment issues, is a consultant to JM Finn. Brian has enjoyed a long and distinguished career in the City. Any opinions expressed are his own and should not be construed as advice from JM Finn. A version of this article may appear elsewhere in the press.