Monthly Market Report - June 2015

27th May 2015

With commentary from David Stevenson

One of the more amusing perks of the job being a journalist is that I get to be on the receiving end of a remorseless tide of information during pivotal events such as general elections. Two sets of PR distributed survey information stand out for me. The first is from financial betting firms who in my experience have a pretty good handle on what the financial speculators think will actually happen next (or at least better at least than the opinion polls). The second stream of reports is the legion of notes by top down, big picture macro analysts and strategists, predicting the likely direction of a big clump of assets like UK equities after a big political move. Curiously both groups were united before the election in their unswerving conviction that we were facing a) another minority/coalition government and b) economic turmoil. I must admit I was minded to agree with both at the time nevertheless also felt that everyone and their dog was under estimating a likely Conservative late surge. Flash forward just a few days and the City is jubilant, markets are buoyant and the prevailing view is that stability has been resumed.

Yet I would wager that the General Election only solved one relatively small challenge - who governs. What the result hasn't done is resolve the economic uncertainties that have always been lurking in the wings. These include how to deal with Europe. The effect of even more austerity on consumer demand. The UKs poor productivity levels and chronic balance of payments issues. The long term strength of sterling, undermining UK exporters. None of these issues were really the subject of the election campaign and none are any closer to being solved after that big date with destiny. All of which makes the current consensus in favour of stability curious. The global economy has probably just about avoided a nasty brush with recession and both the Eurozone and China will probably surprise to the upside in 2015 but the sudden run on Eurozone bonds - and subsequent strains on liquidity - speaks to a huge structural issue. What will happen when global liquidity (powered in large part by the US) starts to tighten? Maybe the becalmed markets, displaying their current low levels of volatility, will finally kick back into a more frenzied mode.

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