Monthly Market Report - July 2018

20th June 2018

The great genius that is President Trump may or may not have cracked the Asiatic puzzle that is Korea, but what we do know is that he’s deadly serious about kicking off a trade war. The real Trump is finally to be unleashed on a stockmarket that has lazily assumed he’d never live up to his twitter tirade. The hugely regrettable fallout from the G7 (or 8 if we include, or even maybe 10 if we include new best friends such as China and North Korea) should underline the basic fact that a multilateral trade framework is now under sustained attack from the country that was its chief author. This has huge implications for globalisation which will take many months and years to filter through to equity valuations. In the box below, I’ve included a very concise summary by analysts at Barclays of the implications of the current trade dispute. Personally, I think they are much too sanguine/complacent but maybe I’m too cynical.

What I do think is important is that a trade war will only hasten the inevitable – the next global downturn. We are, by common consent, late in the business cycle and any responsible investor – and adviser – must be wondering when we’ll hit the ‘wall’. I don’t think a slow down is imminent but it must be, by definition, inevitable within the next few years. On this I note a fairly weighty recent note from an investment summit at Pimco. They observe, again rather complacently in my view, that "a U.S. recession is part of our baseline outlook for the next three to five years, and we would expect significant global economic and market spillovers in that event.” An expression involving horse manure and Sherlock comes to mind. When that slowdown comes they surmise that it will be a "shallower and longer” one – they call it a wok- or saucer-shaped, recession rather than a deeper but shorter V-shaped recession:

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