View more on these topics

Jupiter: Markets are steady, but something doesn’t fit

Global economic data appears inconsistent

Equity markets beckoned the new year in a robustly positive frame of mind, determined to put the blues of a dismal ending to 2018 behind them, and that infectious spirit of optimism has persisted. The extent to which major global equity indices have recovered a substantial portion of their losses of last year suggests all must be rosy in the garden and companies’ prospects are undimmed.

Yet government bond prices too have been rallying (the result of which is yields have fallen, in some cases sharply; yields on government bonds tend to reflect or anticipate changes to central banks’ monetary policies) in the belief that a recession is around the corner.

Gold prices have also been buoyant, further suggesting investors are looking for protection against future difficulties. Something seems inconsistent. Can all three premises be correct?

The economic data is not good. Global growth is decelerating from around 3.2 per cent last year towards an estimated 2.8 per cent in 2019.

The US, still substantially the world’s biggest economy (roughly 25 per cent of global GDP), is slowing and while companies remain broadly optimistic about prospects, some consumer data has weakened in the past few weeks. Europe is plain worrisome: Italy is officially in recession, German industrial data is sufficiently poor that it risks flirting with recession, and France is returning to its seemingly natural state of economic sclerosis. While the peripheral European Union countries are in better shape, the three biggest economies at the core of the eurozone are in a state of virtual atrophy.

China too is a preoccupation: its economy is estimated to grow at 6.2 per cent in 2019, down from 6.6 per cent last year. When comparing China with Europe and Japan, both struggling to maintain positive momentum, and US growth of around 2.1 per cent, you may well ask why a Chinese growth rate of “only” 6.2 per cent presents a problem.

At 15 per cent of global GDP, China is the second-largest economy in the world; even if it achieves it, 6.2 per cent will be the country’s slowest growth rate recorded in over 20 years apart, from 2009.

Of the incremental growth in the global economy, China alone contributes one third (and 10 years ago, the comparator would have been a quarter – its growth rate matters even more now to global prospects than a decade ago).

The difficulty is compounded by suspicions that the Chinese authorities are reporting optimistic numbers. Is the economy really only decelerating from 6.6 per cent to 6.2 per cent when other economies with whom China trades are decelerating much faster? How can China be growing at twice the rate of its domestic electricity consumption? Is the response by the authorities to cut taxes and slash banks’ reserve requirement ratios (the proportion of regulatory capital banks must maintain to protect their balance sheets in the event of significant defaults by creditors) fully consistent with an economy which is still growing at over 6 per cent and in good health?

It saps confidence when economists and experienced China-watchers fundamentally disagree with the official data and start making their own assumptions about what they believe is the reality.

Is it the pessimists who are right and the equity optimists who are going to suffer burned fingers? Why are equity markets seemingly so sanguine? There are two principal reasons. First, supported by tweets from president Trump, optimism persists that the US policy of ratcheting up tariffs in the trade war with China will be ditched, at least to the point of no escalation from the existing rates, if not scrapping them altogether.

Were a significant potential threat to global trade flows to be removed in the event an accommodation is reached, the likelihood of a global recession recedes. Second, opinion is hardening that US monetary policy may be relaxed to give a boost to the economy; there is speculation the next move by the Federal Reserve will be to cut interest rates and even, possibly, reintroduce quantitative easing.

In the UK it’s difficult to avoid the subject of Brexit. As we write there are just days to go before B-Day, and the position remains as clear as mud. However, for global investors, while Brexit is relevant it should not be an obsession. That’s not to say we’re not interested in the outcome!

John Chatfeild-Roberts is head of strategy for the Jupiter Independent Funds Team



Pension confidence low for over 60s despite financial security

A new study by Just Group shows seven in 10 over-60s feel financially well prepared for retirement but also lack confidence about the size of their pensions. Research carried out by Opinium Research on behalf of Just in January 2019 among 4,000 UK adults reveals concerns about meeting future care costs and ability to leave […]


FCA confirms ban on binary options sales to retail customers

The FCA has confirmed that binary options products can no longer be sold, marketed or distributed to retail customers. In a statement today, the FCA says that binary options – which often involve the investor either taking a fixed return if a strike price is reached or losing their original investment entirely – are “gambling […]

Royal London to increase fund fees

Royal London Asset Management will increase fees for some of its multi-asset, equity and bond funds as it switches to a new fee structure. RLAM will roll annual management charge and ongoing charge figures into a single mixed fund management fee from 3 June. RLAM chief distribution officer Rob Williams says the move follows customer […]

Guide cover resized

Guide: Johnson Fleming’s managed auto-enrolment service for SMEs

Johnson Fleming has launched its new managed auto-enrolment service, designed to support SME businesses of up to 250 employees. The managed auto-enrolment service is not just about providing businesses with a software system for them to manage themselves, but more about outsourcing the administration of the project and scheme to Johnson Fleming’s auto-enrolment staff.


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm