Sobering October; Heathrow Expansion; Mega M&A back on the radar; Breakin’ up is hard to do;
Renewed Chinese currency decline no cause for panic; OPEC: Was it all just bluff?

Sobering October
UK investors observing double digit returns for 2016 from their investment portfolios should refrain from worrying that capital markets have lost the plot and are overheating. If they looked at the same investment portfolio from a US$ or €Euro perspective, they would find values have gone up only little or in the case of fixed interest bonds even lost value.

Heathrow expansion – ‘Fly me to the moon’
Both the Heathrow and Hinkley Point initiatives illustrate the possible benefits of a considered fiscal (and infrastructure) policy, and shows it need not involve tax-payers’ money, an increase in deficits, nor an expansion in the public sector. In addition, fiscal policy need not involve more radical approaches like so-called “helicopter money”, or more immediate policies like reductions in tax.

Mega M&A back on the radar
This leaves the question of whether the abortion of IPOs in the UK points to a different direction of sentiment, with a number of commentators being quick to suggest that increased Brexit uncertainty was the underlying cause. We beg to differ and note that the top end pricing premiums proposed by the advising investment banks may carry much of the blame. This would indicate that, while sentiment is on an improving trajectory, we have by no means reached the exuberance levels which tend to indicate overheating of the capital market cycle.

Breakin’ up is hard to do
The combination of the complexity of the separation negotiations with the political lock-down of Germany and France over much of 2017 make it quite unfathomable that any form of constructive conclusion for either side can be found by March 2019. We were therefore not overly surprised when rumours were making the round that a compromise may be found under which the transformation processes would continue while the UK continues to be a paying but not formal EU member – regardless of Article 50 wording.

Renewed Chinese currency decline no cause for panic
Some of the move lower in the Yuan could be attributed to a limited and managed devaluation process by the government to improve the competitiveness of Chinese goods, in response to the recent strength of the US dollar. Effectively, given the Yuan’s peg to the dollar, expectations of an interest rate rise in the US (and the subsequent rise in USD) have resulted in increased selling of the Yuan for US$, prompting government exchange rate setters to yield to the Yuan downward pressures.

OPEC: Was it all just bluff?
A real change to global supply must be enacted for oil prices to remain stable in the way these producers so desperately desire. Against the reality of supply, demand and lack of unity amongst oil producers in pursuit of shared interests, we expect it highly unlikely that the oil price will rise materially above the $50 mark anytime soon.

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