Peaking, plateauing or dimming – and how about that war?
Considering the sheer volume of geopolitical war talk, it might seem surprising that stock markets
ended the week up, not down. The reason for this is most likely that the probabilities for an actual
trade war between the US and China are seen as reducing, while the probabilities of retaliatory
US military strikes against Syria’s Assad regime (inadvertently) getting out of control are potentially
underestimated.
We need to talk about the UK
Since Easter, the UK’s media coverage has been dominated by poisoning of spies, bad weather and (to a lesser extent) Brexit. But, quietly beneath those headlines, the UK economy appears to be stalling. The most visible evidence of this is in the stagnation of the housing market, the construction sector, and increasingly tough trading conditions in the retail sector.
US and Russia conflict over Syria
Fears over military confrontation between the US and Russia were widespread this week. The suspected chemical attack by Syrian military forces started a series of threats between the two powers, with a Russian official stating on Tuesday that Russia would shoot down US missiles. In typical fashion, President Trump took to twitter to respond, warning Russia to “get ready” for American missiles.
Insight – Fundamentals of bond returns and yield curve reading
In most of the developed nations, investors view government bonds (that have a fixed coupon and pay back the capital at maturity in their own currency) as the least risky investment that can be made. The government will be able to pay back the capital at maturity because its revenue is enforceable by law and, if its central bank can print its own money, the government can force the central bank to print enough. And even if the government has problems paying capital back, it’s highly unlikely that their bonds will be any worse off than other domestic fixed investments when and if the government gets into such a position. In terms of knowing what you’re going to get as a nominal return, there is nothing better for an investor.
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