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Encouraging kick-off

5 January 2018

2018 has started on a positive note. Despite widespread fears for capital market upset through the coming into force of MiFID II on January 3rd, all remained calm and equity markets started with a positive week. This latest round of regulatory tightening across the EU’s securities markets, will have some longer-term effects that may only become apparent further down the line. To create some clarity what it might mean for private investors, we have dedicated an article to MiFID this week.

Compared to the start of 2017, many market influencing aspects appear much less uncertain than they did a year ago. Synchronised global economic growth has become sustained and industrial growth hit a multi-year high at the end of 2017. This week’s release of very encouraging business sentiment figures from around the world for December are evidence for this. The political perspective remains somewhat unnerving, but almost one year into the Trump US presidency the world is a lot less unnerved by his tweets as we have learned that he remains more show than achievement.

The button size bragging episode between North Korea’s Rocket Man Kim and US’ Tweet Trump would in the past have seriously increased the temperature of global geopolitical tensions. Now, there is more amusement and some head shaking, while the focus quickly shift to the more significant re-opening of the dialogue lines between North and South Korea.

The focus of commodity markets was on the widespread public protests across Iran, where the Ayatollahs for the first time appeared to fear to be overrun by the same revolutionary dynamics that 40 years ago got themselves into power. The acceleration in oil and other commodity prices was supposedly a result of this new source of uncertainty. We reflect in two separate articles on the changing geopolitical environment and the seeming revival of the commodity price rally. At the moment, we cannot get overly excited about either, although the developments in Iran could lead to a constructive strengthening of moderate, secular forces.

Regarding the recent surge in commodity prices we suspect that nervous equity investors and frustrated hedge fund managers are testing whether they can rekindle broader interest in commodity prices, when equity markets in the US appear maxed out. At this stage of the economic cycle commodities have been a good bet in the past – alas this time, investors have only just digested the bursting of the last commodity price bubble and a repeat so soon therefore seems not very likely.

Even the UK’s Brexit uncertainty millstone has recently begun to lighten up somewhat. December’s movement on the negotiation side has led some to suggest that the country may well be more likely to head towards a ‘Fake Brexit’ rather than a ‘Hard Brexit’. More important however, is that the economic situation in the UK is gradually improving since the turning point last summer. This is despite politics and has a number of reasons, some grounded in the global improvement of demand, some solely to do with the UK domestic consumer and their affection of debt and residential property. As our head of investment Jim Kean argues in the insight article about the UK’s fundamental economic position as we enter 2018, we can reasonably expect the economy to brighten up even in the UK.