Markets struggled in August as trade tensions between the US and China ratcheted higher and economic data remained unconvincing.
Domestic politics is doing little to settle market nerves as the prospect of a no-deal Brexit also climbed over the month.
Despite these and other challenges, markets have remained relatively calm. The bulk of the losses came at the very start of the month, with a return to moderate levels of stability thereafter.
No clear pathway to resolving the major geopolitical issues is immediately observable. Volatility could remain a persistent feature as President Trump and Prime Minister Johnson continue to take bold steps in their attempt to secure improved terms in their respective negotiations.
Meanwhile, global manufacturing data is disappointing. No doubt trade frictions around the world will have weighed on activity in this regard, but it may not be the sole explanation.
Following the global growth resurgence of 2017, production, and associated inventory levels, rose to meet increased demand.
As growth began to disappoint in 2018, so businesses began to run down their inventories of stored materials and goods. With much thinner levels of stock, the manufacturing slowdown may start to bottom out, as business orders tick up to, at the very least, maintain appropriate levels of inventory. Such a strategy is, of course, based on the proviso that demand does not crater.
Whilst trade and the associated slowdown in manufacturing have been acting as a drag on activity, the service sector globally is still holding up rather well.
Consumers remain in a very good shape with job creation still advancing at a healthy clip, wages enjoying modest gains, and inflation remaining dormant, in turn boosting consumer spending power.
The coming weeks will be important for Brexit as the ‘Remain alliance’ reveal greater clarity on their intended strategy to prevent no deal.
Success or failure may have less predictable effects on the pound as the prospect of a general election may also increase.
The UK stock market is dominated by businesses who generate most of their revenues from overseas, meaning the FTSE remains a good hedge against sterling weakness over the medium term - unlike cash deposits.
Forecasting Trump’s next move looks even more precarious, but solace can be found in the history books. Since the Second World War no incumbent US President has won re-election having overseen a recent recession. Such a predicament should encourage Trump to strike a deal.
In an environment where global consumers remain in generally very good shape and interest rate policy remains generous, we remain committed to our overweight equity strategy.
Geopolitics remains a short-term risk, however, not least when the motivations and strategy of the chief negotiators are so hard to read.
The value of investments can fall and you may get back less than you invested.
Past performance is not a guide to future performance.
The information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.
The opinions expressed in this publication are not necessarily the views held throughout Brewin Dolphin Ltd