The Multi-Asset Process

September 2018 Market Review

It shows the state of the world today when to ‘tariff’ becomes a verb.

As has been the case for a large part of this year, American threats towards China dominated market sentiment throughout September. While the rows with Europe and Canada appear to have abated, at least for now, President Trump renewed his fight with China over the month, claiming tariffs have put the US in a very strong bargaining position.

“If countries will not make fair deals with us, they will be Tariffed”, he tweeted.

Late in the period, China called off trade talks with US officials, leading to further fears of escalating tension. JPMorgan Chase & Co is now beginning to factor into its strategy a growing potential for a “Phase III” of the trade war next year affecting all Chinese imports, which would lead to weaker Chinese growth and hit US stocks.

As has been written many times since he took office, Trump is very much a businessman rather than a politician and his negotiations have very little in the way of political correctness, in either sense of the phrase. As we wrote last month,
his approach to negotiation often seems to be throwing a grenade into the room and then offering to help clear up post explosion – less a gunboat than a tariff diplomat.

Throughout the face-off, commentators have said they expect both sides to stop short of doing anything that would cause permanent damage but the further the situation continues, the more likely such damage becomes.

Consensus still suggests we will step back from the brink – but as the months of back and forth go on and on, especially if Trump survives the impending mid-term intact, that brink looks ever closer.

On the Brexit front, the month served up the usual mix of small steps forward and large, humiliation-hewn, lurches back – and as the exit clock ticks down to six months, we remain as far away from resolution as ever.

During September, Theresa May suffered the ignominy of seeing her Chequers plan rejected by EU leaders in Salzburg. European Council President Donald Tusk said that while there were some "positive elements" in the plan, "The suggested framework for economic cooperation will not work, not least because it is undermining the single market."

He followed it up by posting a photograph on Instagram of he and Mrs May looking at cakes with the caption: "A piece of cake, perhaps? Sorry, no cherries."

At the end of the month, we saw another reminder that much of the world is firmly on the policy normalisation path, with the Federal Reserve hiking rates by 25 basis points as expected. Although it also dropped the description of policy as "accommodative", more rate increases are on the cards – with the next potentially as soon as December.

We often talk about opposing forces of fear and greed and in recent months, most of the greed has coalesced in the surging US market and most of the fear everywhere else: emerging market malaise has stretched through the summer, exacerbated by the recent situation in Turkey.

We continue to see opportunities at this cheaper end of the market however – which looks even more attractive after recent weakness.

A quote from revered investor Sir John Templeton goes as follows: “Bull markets are born on pessimism, grow on scepticism, mature on optimism and die on euphoria.”

For me, the US is at stage three at present – and potentially well through that – while the rest of the world is still at two, suggesting the current run has legs, at least for now.

For a comprehensive list of common financial words and terms, see our glossary here.

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Tuesday, October 9, 2018, 2:47 PM