Trumponomics; 2016 Asset Class Returns; Spiking Chinese interbank rates; The return of ‘Animal Spirits’ to boost growth in markets?

2016 Asset Class Returns;  Growth boosting ‘Animal Spirits’ finally returning?;  ‘Trumponomics’;  Should spiking Chinese interbank rates ring alarm bells?;  UK retail clothing sector update      

2016 Asset Class Returns

Investors need to be somewhat careful in their interpretation of 2016 investment returns, due to the overwhelming influence of currency movements during this year. UK investor concerns that markets have overheated on a broad basis are premature. Should –  contrary to current consensus expectations –  £-Sterling recover significantly over 2017, then much of UK investors’ 2016 currency induced investment gains could evaporate.

Growth boosting ‘Animal Spirits’ finally returning?

For the moment business and capital markets appear to have given the benefit of the doubt to the new nationalist and simplistic tone in global politics, because if the promised rewind of globalisation was indeed executed, then the economic outlook would have to be far less optimistic, given the inevitable reduction in global trade and commerce. In principle I would agree that such a policy shift would be so detrimental to nations’ economic prospects, that more levelheadedness will prevail in the longer term. However, in the shorter term Donald Trump’s aggressive megaphone diplomacy and politics and the UK’s seemingly plan-less or even illusionary approach to an economically viable Brexit route, tell me that there is plenty of potential to undermine resurgent business confidence during 2017.

‘Trumponomics’

In our view, non-material and/or simple tax cuts alone have as little chance of delivering a sustained impetus to economic growth as the reduction to households’ energy bills did two years ago. Even if we are wrong, and “Trumponomics” in the form of loose fiscal policy does significantly boost the already accelerating US economy, the Fed would have to tighten monetary policy.  You can’t have your cake and eat it.

Should spiking Chinese interbank rates ring alarm bells?

Financial markets have benefited from the abundance of liquidity during 2016. The real economy could start to draw that liquidity away from financial markets if central banks don’t continue their easiness. Even if the economic circumstances are entirely different, liquidity squeezes have the unpleasant habit of triggering sudden market sell-offs, which means that we will be watching this development at the other end of the planet closely for any signs of contagion to the broader global capital markets.

UK retail clothing sector update

The UK clothing retail sector is facing many challenges. The year ahead is likely to be extremely difficult with the cyclical slowdown in spending on clothing and footwear set to continue.

In selecting investments for Tatton’s AIM portfolio investments, we have been cautious about companies in the retail sector exposed to these headwinds in trading and profitability and have in the whole avoided the sector. We do, however, see value in some niche opportunities that have compelling scope for further growth despite these headwinds in the broader sector.

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