Dagelijkse update over de markten vanuit KBL European Private Bankers (Engels)

InsingerGilissen, 03 SEP 2019

The pound sterling is close to its 3-year low versus the US dollar as it flirts with the 1.20 level. Yesterday, the UK PMI data showed that UK politics are wrecking the country’s economy. It actually indicates that EU-based clients are busy reroutingn supply chains away from the UK as they fear a no-deal Brexit. And today, the political show in Westminster will start in earnest with the opposition parties together with some Tory rebels trying to block a no-deal Brexit, possibly leading to new elections. In a word, uncertainty all around.

But what seems to be sure is that this would be costly for both the UK and the EU. According to some studies, a no-deal Brexit would shave off 0.3% from EU GDP growth.

And that is of course not the only uncertainty. The ongoing trade war between China and the US keeps festering. Today’s news indicated that so far both parties have not decided upon a date to return to the negotiating table. And when uncertainty rules in the financial markets, very often the US dollar gains. Perhaps unusual because gold is also staying firm, with investment flows into the yellow metal still strong. This is unusual, because gold and the US dollar seldom strengthen together. But the US Dollar Index is climbing towards 100 indicating additional pressure on other currencies.

And in the midst of all this uncertainty, JP Morgan believes it’s time to buy equity. Their call is based upon extreme pessimism reflected in the Bull & Bear indicator which has fallen to fresh lows. This has triggered a buying signal. However, the rate of success has only been about 62.5% in the past. However, after such a buy signal, equity always outperformed bonds, which 100% of the time saw their yields rise.

Investing in equity has always been earmarked by the saying ‘climbing a wall of worries’. The wall of worries today seems formidable. But being a bit contrarian regarding the timing when to buy or sell stocks, has often paid off. However, with all the events witnessed today and more important economic data to come later this week, it takes a brave soul to go out and buy.

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