Weekly Market Update: Markets correct on NAFTA and Tech concerns

Mon 10 Sep 2018

Read our full Market Update Week 36

Market Update

Equities saw sizeable falls across the board last week, both in local and Sterling terms. UK stocks fell -2.0% with US and Global stocks down -0.7% and -1.5% in GBP. Other areas fared even worse, as European, Japanese and EM equities lost -2.3%, -2.6% and -2.8% respectively. Concerns about a possible revising of the North American free Trade Agreement (NAFTA) and a fall in the technology sector, as Facebook and Twitter executives faced questions from Congress, were the prime catalysts for the falls. It was a week where diversification through fixed income did little to protect investors, as yields rose in the UK, US and Germany. US 10Y Treasury yields are once again testing the 3% level having risen 7.8bps last week. Sterling’s performance was mixed, gaining +0.1% vs EUR but falling -0.3% vs USD and -0.4% vs JPY. In USD terms Oil fell -2.9%, but remains up +12.1% year-to-date, while Gold and Metals fell -0.4% and -1.6%.

CIO Analysis

This week, investment commentary will surely focus on the 10-year anniversary of the demise of Lehman Brothers. The most striking fact about the 2008-9 Global Financial Crisis is its profound effect to this day. It is difficult to get through an investment committee without some reference to that era. The most enduring lesson would be how easy it is to make a protectionist decision and how difficult to undo its effects. It may be forgotten, but in the small hours of Saturday September 13, 2008, two days before Lehman collapsed, Barclays was a breath away from acquiring Lehman’s assets in an organized bailout. However the plug was pulled on the deal after the Chancellor of the Exchequer, Alistair Darling, vetoed it, famously saying “We will not import your cancer”. On the face of it, a perfectly sane decision. Lehman had lost $6.7bn in six months, debts were in excess of $600bn and its assets were collapsing in value. However, the final bailout cost over £137bn, not counting the billions in banking fines and the profound societal changes that the subsequent misallocation of capital brought. Food for thought, as US Dollar strength hurts Emerging Markets and momentum gathers for a protectionist-induced slowdown in global trade.

David Baker, CIO