Summer snapshot

Zach Chadwick, an analyst within the J.P. Morgan Asset Management UK equity team, looks back at investor sentiment, baby steps towards a Brexit deal and economic progress this summer.

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Oct 01, 2018
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This summer, the emerging markets have successfully commandeered most of the column inches. As the Federal Reserve has started its quantitative tightening programme, a decrease in dollar liquidity and a strong US domestic economy has driven the dollar up and emerging market (EM) currencies down.

An emerging markets bear market has had a limited direct effect on UK companies, but on a global level, investor sentiment has been negatively hit. The rout in EM equities has overpowered other drivers of sentiment, like strong economic data, to cause a drag on European stock markets. This is clear to see from the two-year high in correlation between euro-area stocks and EM equities. And it hasn’t been helped by concerns around trade wars, triggering a narrowing of the bull market towards the US and, in particular, towards US tech names.

Baby steps towards a Brexit deal  

In the UK, this has been accompanied by a build-up of Brexit uncertainty as we come closer to the March 2019 leave date. Despite May and Juncker publicly declaring their willingness to cooperate in late August, stubbornness from all parties involved seems to persist. This peaked during a tumultuous meeting of EU leaders in Salzburg which has done little to quell the nerves of those hoping for a soft Brexit. The consensus is that it will take at least two European council meetings to make any headway on a Brexit deal; the final two before the Brexit date in March are currently set for October and December. Given the recent positive rhetoric, the optimists among us will hope for more detail after the October meeting.

Positive economic progress

Despite this, economic data still seems to point in a positive direction for the UK. Real GDP growth has remained positive and unemployment is at its lowest point for 50 years. What’s more, the surge in fiscal stimulus through the big tax cuts in the US could prolong the cycle as it has boosted consumer, and more noticeably, business spending—the laggard in this recovery. Valuations are at levels that look attractive—towards the bottom of their recent range on a price/earnings basis and the top end on a dividend-yield basis.

Zach Chadwick is an analyst within the J.P. Morgan Asset Management UK equity team. Read more about our UK Capabilities >

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Go to the profile of Zach Chadwick

Zach Chadwick

Analyst, UK Equity Group, J.P. Morgan Asset Management

Zach Chadwick is an analyst in the J.P. Morgan Asset Management UK Equity Group.

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