This is clearly an interesting time given recent gyrations in the bond yield curve however we observe that the yield gap relative to bonds remains extreme. This is at a time where the prospects for equity income growth, if anything, are improving aided by Sterling depreciation,a modest upswing in consensus forecasts and a revival from very low levels of commodity stocks earnings expectations.
It is a cliché but Britain is a trading nation. Last year the UK exported £669bn of goods and services to the world equivalent to 36.5% of GDP. It is therefore critical to UK economic health that an optimal trade deal is reached as trade growth is a key driver of economic and employment growth and ultimately prosperity.The note looks at the UK's current asymmetric trading position: good at services and global trade, very poor at goods and EU trade resulting in the largest current account deficit in the G7 and outlines the post BREXIT options available.
Perhaps the rate cut was not a surprise, but agreeing to buy up 7% of the corporate bond market (£10bn) to drive down yields and increasing QE by £60bn to a staggering £435bn was way more than we expected. Moreover, broad hints of a further rate cut to near zero were suggested. It seems there is no limit to the strength of the dose of medicine the Bank are prepared to deliver in order to abolish any cycle.
The last few days have been brutal for investors. The unthinkable happened against all the bookies odds and City’s expectations. While the FTSE 100 has declined by just 4%, since the close of Thursday night this belies some substantial volatility with major moves in Sterling, bonds and UK domestic cyclicals and financials.We view the primary risks as one of politics not economics, but political risk could lead to an economic one if not handled properly. Please contact us for a copy of the note.
A week today we will know. Will we stay or will we go? The unthinkable is now a real possibility and this note, which assumes a Leave vote, simply as that is the more complex capital markets result, looks at the immediate aftermath, the politics of it from a UK and EU perspective, the likely negotiating positions and battle lines, the implications for Scotland and the EU and perhaps our core assumption - the Machiavellian view, which we outline in the note.