The Daily Update - The Worst S&P Start Since 1929

So here we are in Q2’18, and we start with cries of horror that the Standard and Poor’s stock index has had its worst April start since 1929. Come on chaps it has been one trading session, and with a quarter of the investable world on holiday; although the concerns looking forward appear quite real.

We have often raised questions regarding the current Fed posture; broadly, it took six years of aggressive QE and historically low interest rates to get US growth up to around 2.5%. With the withdrawal of QE and the process of reducing the balance sheet, while at the same time tightening monetary policy through interest rates, this strategy has always caused us some concern, although the tax cuts will help in the near-term.

Add in current trade frictions, with China retaliating over the weekend by introducing tariffs on 128 imported US products, and a US president who seems to want to alienate most of the major global economic powers near and far from US borders, and you have a rather uncertain global outlook at best.

The NAFTA negotiations are expected to be continued next week with President Trump’s team signalling that he would like a deal in principle within two weeks. This resulted in strengthening the Mexican peso rate by a further 3% against the US dollar over the last ten trading days. Obviously this makes Mexican exports a little more expensive; strangely, the Canadian dollar hardly moved … making it pretty obvious who Trump’s target is on this deal.

So we start the quarter with a somewhat uncertain outlook which seems shared by the new Fed Chair as he appears to be a little sanguine towards an over-tightening of policy given the current outlook. Other members also appear to be moving back from earlier expectations as over the weekend Harker, although a non-voter, noted that he sees just two further rises as appropriate this year, and voter Bostic retaining his view of three rises in total for this year.

We continue to monitor ongoing politics and economic data, and retain our view that global economic growth risks are on the downside over the coming twelve months.

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