Margins
Fine
This past weekend gave us examples of fine margins. Spain’s winner in the Euro final against England being just onside and England’s chances being cleared off the line with just a couple of minutes to go. For followers of the oval ball, Ireland’s last minute kick to beat South Africa was another.
Crucially for Donald Trump, it was a fortunately fine margin that meant the top of his right ear took a would-be assassin’s bullet and not a likely terminal outcome an inch or two to the left. Nevertheless, it has done much for his ratings.
In financial markets, economic data was marginally better than expected in key data released in the UK and US last week. Markets are, and have been, moving in response to minimal differences to the expected data but they were heartened by UK economic output – see below for the chart taken from The Daily Shot:
Additionally, US inflation data was marginally better than anticipated as the following chart illustrates:
Source: The Daily Shot
Good news for US Federal Reserve Chair, Jerome Powell:
Wide
The Labour party’s victory in the July 4th UK General Election was such a wide margin of success that it was described as a landslide. Sterling and UK assets were generally firmer on the outcome as political certainty was viewed positively after the chaos of the last couple of years. The prospect of more domestic and international money finding its way into UK companies was also helpful.
Post the assassination attempt on Presidential candidate Trump and President Biden’s poor showing in the first TV debate followed by more gaffes, the gap between their ratings has widened. US Treasuries have taken note as the yield curve steepened to account for likely pro-growth, increased spending from the Republican candidate. Thirty year US Treasury yields now exceed two year yields for the first time since January. A month ago, two year yields were 0.35% higher than their thirty year counterparts.
The tightness of the US Labour market is loosening as we have evidenced before by looking at the leading indicators available. The lagging indicator that is the non-farm payrolls report on the first Friday of the month has begun to confirm our thoughts. As with previous non-farm payroll reports, there were significant revisions to the two previous months. In this case, down 111,000.
Better (lower) inflation data and weaker employment data have resulted in a high probability of a US rate cut of 0.25% in September.
The French election outcome was something of a surprise and wide of the mark from the expected showing of the right wing RN party. The French political landscape has moved significantly left giving President Macron a different problem, but French assets calmed after a couple of weeks of increased volatility.
China’s economic output disappointed by a wide margin.
Japanese equities have done well this month to date. A rate increase is likely soon and baked in to asset prices. They Japanese yen has stopped falling, helped by Bank of Japan intervention.
Your Money
There have been no significant changes to portfolios in July to date. Almost all the multi-manager holdings have benefited from the positive market backdrop. Asset allocation has been a positive with long-term overweights in the UK and Japanese equities helping Fund performance.
Thematically, energy transition has had a better July than June. On the negative side, the excellent Polar Insurance Fund has been influenced by market reaction to the fallout from Hurricane Beryl even though it has minimal catastrophe exposure.