Published: October 4, 2019

Relevant Strategies

• Moderate
• Balanced (and International Balanced)
• Growth
• Aggressive Growth (and International Growth)
• Gold & Precious Metals
• Natural Resources

Our Commentary

Financial headlines are still dominated by continued trade uncertainty between the US and China, a trade spat between the US and the EU ripe to surface at any time, a weakening global economy with global manufacturing effectively in recession and little obvious progress in Brexit negotiations. Central Banks have consequently veered towards a more dovish stance but it is doubtful that this alone can continue to propel markets to new highs for much longer.

Equities

Stock markets also delivered positive returns but economies and stock markets most exposed to manufacturing fared worst with Emerging Markets losing ground.

US shares continued to outperform and provided a return of 5% in sterling terms.

UK and the broader Continental European equity markets rose between 1% and 2%. With the pound and UK equities both out of favour and arguably undervalued, we saw a succession of bids for UK companies including media company Entertainment One and pub operator Green King. German economic growth has stalled, dragging Europe’s down with it.

Fixed Income

Consequently, the European Central Bank has agreed to restart its quantitative easing programme in November with €20bn of bond purchases monthly.

Most European bond yields hit record lows in August, as did US 30 year treasuries. The 2/10 yield curve became inverted for the first time since May 2007 and this is just one of the indicators pointing towards a recession by H1 2021.

Commodities

A further consequence of the low yield environment was the positive performance of gold which rose 8% in August alone.

Portfolio Actions

In the short term we expect the economic and corporate news, on which traders rely, to reflect the slowdown in global trade led by the US-China trade war. Indeed, the most recent manufacturing data has failed to meet even reduced expectations and the concern is that this will spread to the broader economy with the European service sector leading the way downwards. Market volatility moving into Q4 reflects this.

However, with interest rates now firmly in ‘lower for longer’ territory again, and governments lowering taxes and looking to increase spending, we expect the outlook for investors with longer time horizons to improve as we enter 2020. All strategies were re-balanced accordingly.

Regards,

Euro Pacific Advisors Management Team