The World In A Week – Groundhog Day. Again.
It was another week that Phil Connors would have been familiar with, being the reluctant hero portrayed by Bill Murray in Groundhog Day and ironically the title of our Monday update five weeks ago.
We all recognise the merry-go-round of geopolitical risks that currently dog the markets and last week we got another episode of kicking the can down the road. If there is one certainty that has evolved during the recovery from the Global Financial Crisis, it is that if a decision can be delayed, it will be.
We had the US and China negotiating the current trade tariffs with the decision being to delay the increase in trade taxes until “further notice.” It is increasingly looking like the US/EU trade settlement, which was a continual series of delays with no new tariffs being implemented.
The can then travelled east to North Korea, where the summit between Donald Trump and Kim Jong-Un also inevitably ended with no progress being made. However, if you want the ultimate in no progress, you do not have to look far from home, with the vote on exiting the EU being deferred until 12th March. The newest version of indecision comes in the form of a possible extension to Article 50, which decides when we must leave the EU.
So nothing new to report, just an incremental move to delay decisions by the world’s politicians. The opposite can be said about the world’s central banks though. Since the beginning of the year we have seen a mea culpa in the wake of the December market meltdown, led by the Federal Reserve and followed up by the majority of the main central banks. The policy of tightening has been dramatically reversed and we now have an environment that sees central banks playing the role of guardian for investors once again; providing a safety net in the form of liquidity and an easier monetary policy.
After almost ten years since the end of the Global Financial Crisis, the perception of the world economic backdrop is looking a little more fragile. We should expect a continuation of economic cycles that have been a feature of markets since they were created, booms and busts, however the current boom has been much more subdued and more elongated than previous recoveries. As such, it is not inconceivable that the rally continues for some time.