The return to a goldilocks environment?;  Crisis in Economics;  no sign of Brexit effect in UK Property;  E-commerce – emergence of new monopolies?;  Bitcoin and currencies remain volatile

The return to a goldilocks environment?

I am glad to be positively surprised about the various upbeat economic data reports around the world and the fact that government bond values have stabilised. This tells me that capital markets have not gone ‘bonkers’ but recognise that a few promising green shoots do not yet make a full bloom. As a consequence, I believe that our central scenario assumption, of another politically unnerving, but economically stable and improving year is more realistic than to continue to expect the next economic and financial Armageddon, as so many in the hedge fund industry have done for the past years.

Crisis in Economics?

Economics is a policy science and, as with any predictions with whose use is policy-based, if you do a good job, your downside predictions should always be wrong. As Carney himself stated on Wednesday, the BoE didn’t just passively predict a storm, they “helped make the weather”. The very fact that a forecast has been made, especially from as big a market player as the central bank, affects whether or not it will turn out to be true.

Also, despite the allure of the analogy, the economy isn’t like the weather. It isn’t a disinterested natural phenomenon, but a highly reactive beast. If policy-makers’ predictions are effective in helping achieve their policy aims, they will most likely be inaccurate.

UK Property market update: no sign of a Brexit effect (yet)

Despite the high level of uncertainty surrounding Brexit, the residential property market should remain relatively robust across the country, notwithstanding the issues in luxury London homes. At the low-to-middle end of the market, prices should receive support from continued low interest rates, easy mortgage availability and Help to Buy as a powerful driver of additional demand.

E-commerce – emergence of new monopolies?

While competition authorities cannot – and should not – impede market developments, we consider that arguments made by companies in defence of certain mergers or acquisitions need to be treated with caution, e.g., scale efficiencies. Moreover, companies across all sectors need to be exposed to vigorous competition, whether in product markets or in the financial markets.  This holds for e-commerce and digital companies as much as it does for traditional markets. Indeed, given the continuing changes in the market and prevalence of online transactions and commerce, it may be even more important to ensure there is competition in these areas.

Bitcoin and currencies remain volatile 

As a result of the PBoC move, the Bitcoin price fell by more than 25% over the next few days, back to around $760. Despite the recent price movements, the evidence is that Bitcoin is becoming less volatile and acting more in line with ‘real’ currencies like the Japanese Yen, Pound, and even the Euro. The virtual currency has managed to be more stable than the Brazilian Real, the South African Rand and also the oldest currency – gold. Interestingly, the increasing stability of Bitcoin has occurred all without the need for a central bank. Perhaps this free market solution to currency has the capacity to mature towards a truly stable and thereby reliable store of value over time.

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