Another can gets kicked

Some optimism has helped to bolster markets which have rebounded from the dog box they were in. Julian Chillingworth, Rathbones chief investment officer, explains why we are cautiously confident but still mindful of the looming threats to global growth.

Expect delays electronic display

Stock markets were in the dog box at the start of the year. Forlorn investors moped around about the dreary state of the world and economic growth; but not for long. Markets rocketed higher and delivered the best first quarter in almost a decade. Last month we sounded a note of optimism, but with vigilance – it’s been an aggressive upward move given how much fear still stalks the markets.

Optimism about three specific concerns has helped bolster equities: the US Federal Reserve (Fed) put the brakes on interest rate hikes, Chinese growth appears to be rebounding and US President Donald Trump has been making more positive signals about the US-China trade deal. But this last of the three legs of market optimism is looking a bit wobbly. Like the latest episode of Game of Thrones, tensions between the rival powers has been heating up again.

It’s worth considering the way the discussions have changed in the last few weeks and whether there is a possibility that they may become more protracted with no outcome in the short term. The argument in simple terms is that the US believes the Chinese are backtracking on the agreement and suspect the Chinese won’t stick by the deal to respect US intellectual property. The Chinese authorities believe the US is disrespectful of Chinese dignity and its wish to be recognised as a major global power in demanding an imbalanced agreement.  Compromise is made easier when both sides agree on the facts; it’s much harder when it’s based on narratives.

Trade is the one area where Mr Trump has a power that is completely unfettered by Congress. And so Mr Trump has thrown out a number of threats, seemingly on a whim, that would significantly increase tariffs on Chinese goods as well as the volume of trade it would impact.

Like Britain, the US is labouring under a politically debilitating tribalism. Those who support Mr Trump will not believe that his tariffs are the reason why they are paying more for things at the store (US CPI inflation rose 0.1% last month to 2%). And those who don’t understand trade barriers and their arcane effects would have believed the economists as soon as they said Mr Trump was in the wrong.

What does this mean for trade and investments? Well, the more frustrated Mr Trump gets at home, the greater the chance that he will lash out at China. And the more he attacks China, the more he will offend the proud nation. Because China has narratives too.


1 month

3 months

6 months

1 year

FTSE All-Share





FTSE 100





FTSE 250





FTSE SmallCap





S&P 500





Euro Stoxx










Shanghai SE





FTSE Emerging





Source: FE Analytics, data sterling total return to 30 April

Never a dull moment

Sterling has been under pressure again lately with Prime Minister Theresa May announcing that her time in office is coming to an end. As one senior Tory put it, we will see a number of show ponies in the ring, but it’s uncertain which will grab the prize.  Ardent Brexiteer Boris Johnson was the first to throw his hat in the ring and both leavers and remainers are expected to follow. Mrs May will try to get her Brexit bill through parliament for a fourth time in the first week of June, but failure now looks nearly certain with Jeremy Corbyn calling a halt to cross-Party Brexit talks. Brexit uncertainty and sterling volatility roll on with renewed vigor into the next month.

The Brexit tin can has been booted down the road until Halloween and we now don’t even know which prime minister may or may not take us through the deadline. Our predicted most-probable path, the never-ending story, is becoming a reality.

When Donald Tusk was asked whether the EU would consider a further extension, he rather ominously didn’t rule it out, which does indicate that the EU doesn’t want us to crash out without a deal, just as much as we don’t want to. Overseas investors may begin to view sterling and UK assets as more attractive if they don’t think we will crash out of Europe. But a no-deal scenario is still on the table.

What could happen next? A lot may depend on who takes over from Mrs May. Whatever happens, stay tuned. Brexit is here to stay, for another six months at least.

The most important thing to remember is that the typical UK investor is a global investor. Even if you only held companies listed on the UK’s FTSE 100 index, 70-80% of the underlying revenues originate overseas. And Brexit is not a globally systemic event, like the financial crisis of 2007-08 or the European debt crisis of 2011-12. Although Europe will also feel a pinch, the bulk of the adjustment will fall squarely on the shoulders of the UK economy, with very little impact on global growth and therefore the outlook for earnings growth of non-UK companies.

Brexit has become a national obsession, albeit a reluctant one for most. Remember the good old days when it was only the miserable weather that dominated our conversations? Unfortunately, Brexit is going nowhere anytime soon. It will continue to affect the UK economy even when nothing seems to be happening –as shown by the substantial falls in business investment. But well-diversified UK investors shouldn’t fret too much. When your home market is defensive, undervalued and global, it should help make your assets that much safer.

Bond yields

Sovereign 10-year

Apr 30

Mar 31
















Source: Bloomberg




Important legal information

This area of the site is for professional advisers

Please read this page before proceeding, it explains certain legal and regulatory restrictions applicable to the distribution of this information. It is your responsibility to inform yourselves of and to observe all applicable laws and regulations of the relevant jurisdiction.

This section of the website is directed only at investment advisers and other financial intermediaries who are authorised and regulated by the Financial Conduct Authority (FCA).

The information provided in this site is directed at UK investment advisers only and must not be circulated to private clients or to the general public. It does not constitute an offer to sell, or solicit an offer to purchase any investments by anyone in any jurisdiction in which such offer or solicitation is not authorised or in which a member of the Rathbone Group is not authorised to do so.

I confirm that I am an investment intermediary authorised and regulated by the Financial Conduct Authority. I have read and understood the legal information and risk warnings below:

Important Information (Terms and Conditions)

The information contained on this site is believed to be accurate at the date of publication but no warranty of accuracy is given and the information is subject to change without notice. Any opinions or estimates included herein constitute a judgement as of the date of publication and are subject to change without notice. Furthermore, no responsibility is accepted for the accuracy of any information contained within sites provided by third parties that may have links to or from our pages.

Rathbone Investment Management Limited ("RIM") is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered Office: Port of Liverpool Building, Pier Head, Liverpool L3 1NW. Registered in England No 01448919.

In accordance with regulations, all electronic communications and telephone calls between Rathbones and its clients are recorded and stored for a minimum period of six months.

The information provided in this site is directed at UK investors only. It does not constitute an offer to sell, or solicit an offer to purchase any investments by anyone in any jurisdiction in which such offer or solicitation is not authorised or in which a member of the Rathbone Group is not authorised to do so.

In particular, the information herein is not for distribution and does not constitute an offer to sell or the solicitation of any offer to buy any securities in France and the United States of America to or for the benefit of United States persons (being resident in the United States of America or partnerships or corporations organised under the laws of the United States of America or any state, territory or possession thereof).

In order to comply with money laundering and other regulations, additional documentation for identification purposes may be required.

Rathbones shall have no liability for any data transmission errors such as data loss, damage or alteration of any kind including, but not limited to, any direct, indirect or consequential damage arising out of the use of services provided or referred to in this website.

Past performance should not be seen as an indication of future performance.

The value of investments and the income from them can fall as well as rise and you may not get back the amount originally invested, particularly if your client does not continue with the investment over the longer term.

Changes in the rate of exchange between currencies may cause the value of an investment to go up or down.

Interest rate fluctuations are likely to affect the capital value of investments within bond funds. When long term interest rates rise the capital value of units is likely to fall and vice versa. The effect will be more apparent on funds that invest significantly in long dated securities. The value of capital and income will fluctuate as interest rates and credit ratings of the issuing companies change.

Tax levels and reliefs are those currently applicable and may change and the value of any tax advantage will depend on individual circumstances.

Investing in emerging markets or small companies may be potentially volatile, as these investments are high risk.

The design, text and images are owned, except as expressly stated by members of the Rathbone Group. They may not be copied, transmitted, displayed, performed, distributed, licensed, altered, framed, stored or otherwise used in whole or in part or in any manner without the written consent of Rathbones except to the extent permitted and under the procedures specified in the copyright Designs and Patents Act 1988, as amended and then only with notices of Rathbones' rights.

Rate this page:
Average: 5 (1 vote)

Subscribe to the In the KNOW blog email