September 2018: whiplash

The major UK news in September was the Salzburg EU summit, which saw the UK PM become a victim of political whiplash.  This affected the markets, but not entirely predictably.  If you’ve been asleep in September, you’ll struggle to see the ‘surprise’ summit result in the financial charts.

The Trump saga was preoccupied with the Supreme Court last month.  This doesn’t obviously translate into market sentiment, thank goodness.

Image result for whiplash cartoon

Nonetheless, from a UK markets point of view, September had its own form of whiplash.

Taking just the UK, for instance, consider equities (FTSE-100) and sterling. FTSE-100 veered between 7550 and 7250, a swing of 4%. By contrast, the S&P-500 nudged between 289 and 295 – about half as much change in the month. Meanwhile, GBP:USD veered between 1.282 and 1.328, a swing of almost 4% as well.

The FTSE-100 and GBP:USD are correlated, of course.  The USD is the ‘currency of the world’, and FTSE-100 companies mostly are global businesses, trading heavily in USD.  So when the GBP falls, the FTSE-100 goes up – these are the same companies, and valuing them in USD makes in many ways more sense than valuing them in pounds.

But the total swing of the FTSE, measured in dollars, was over 5% in the month.  And back again.  This means any particular snapshot of returns feels very arbitrary indeed. Those of you who ignore month to month movements are definitely on the high ground here.

Anyway, be that as it may, as at the end of September FTSE was up just over 1%.  Sterling itself rose too, about half as much.  And, so it happens, so did the S&P.

2018 09 FIRE v London markets

Bonds, on the other hand, are heading down.  With rate rises firmly on the agenda, the economy ‘booming’ (ish), now isn’t a very bonds-friendly time.  Or at least that is my superficial read on the situation.

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August 2018: US 1, UK 0

I’m not really sure what happened in August.

At least, you’d think something quite significant happened, given that UK equity markets fell over 3% and US markets rose over 4%.

The swing of the US:UK currency itself was notable during the month but over the month fairly minor – with the USD gaining slightly based on 1 August (but the gain having been much bigger only a week ago).

The Australians have joined the Brits, Americans, French, Italians and Swedes in bewilderment at the nonsense their politicians can get up to.  But the Australian markets haven’t moved much; the currency fell and the equities rose in compensation.

The USA appears to be making more ‘progress’ on trade, with the news at the end of the month being about some Mexico/NAFTA-related agreement.  Maybe that helped.  Maybe.

In the UK we saw the media running with the ‘no deal’ ball.  How much of this was silly season, and how much reflected the overlooked aspect of the Cabinet’s Chequers deal in which they agreed to take ‘no deal’ planning much more seriously, I couldn’t say. It has certainly nudged me to move my portfolio a bit more out of the UK than I might have done.

So, all in all whatever drove the big market movements in August somewhat passed me by. But 6 point swings between UK and US equity markets, after currency effects, are not common.  Thank goodness I have almost double the allocation to the USA – which rose by over 4% – than to the UK – which fell by almost as much.

2018 08 FIREvLondon weighted markets

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July 2018: The trade news sweetens

So far as I can see the key geopolitical news in July was a distinct improvement in the US trade war music, if war music is a thing.  In particular the EU:USA dynamics improved dramatically when the EU Commission President, Jean-Paul Juncker, showed Trump how to paint trade by numbers.

Given that markets had been fretting that Trump would start punitively taxing German cars, which he has supported for several decades, the Juncker announcement that the EU would buy more soyabeans had a surprisingly positive effect.  Or at least, that’s how I account for the 3-5% increase in equity markets in USA/International (Europe), compared to just over 1% in the UK/Australia markets I track.

2018 08 01 FIREvLondon markets

In other news, the pound fell a bit, and correspondingly the UK equity markets rose a bit.  I don’t really know why Oz equities were up, in sterling terms, by 2% for the second month running, but I’m certainly not complaining.

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