marketupdateMontpelier Weekly Market Bulletin- 22nd February


Our Investment Update

Most equity markets had a good week last week, with the FTSE All-World Index closing 3.62% higher. Japanese equities led the way with the TOPIX rising by 7.99%. Russian equities, where we have recently been building positions, rose by 5.92%. Volatility slipped back and the VIX fell back below 22. Oil ended little changed with Brent Crude only 0.67% higher when the rally caused by proposals to cap production from Saudi Arabia and Russia petered out.

The general improvement in sentiment was added to by suggestions that the European Central Bank will do more to stimulate growth. This was based on comments made by its President, Mario Draghi, addressing the prospect of inflation weakening further.

In the United States, the minutes of the January meeting of the Federal Open Market Committee showed that the members had not changed their view of the US economy. Goldman Sachs says that futures prices “suggest that investors do not expect a further tightening of monetary policy by the Fed until well into 2017.” Well those investors may get a surprise as we continue to expect rises this year. Given that government bond yields are back to pre-taper tantrum levels this may be something that will cause more volatility in the medium term.

In the short term, though, it seems that worries about economic growth and oil will continue to dominate thinking. Yet there are no signs that global growth is about to nosedive and even some of the rockier European economies are looking healthier. And we are still baffled about why cheap oil is really such a bad thing. But we need to be able to clearly show this before the nervousness goes away. And to show it will mean getting a solid trend of data showing manufacturing is holding up and exports have not collapsed.

So, if the medium to longer term looks healthier, should we be filling our boots with cheap equities? There are plenty of reasons why holding off in the short term and being cautious should be sensible. And yet bottom fishing is a pointless exercise – and waiting too long risks missing opportunities. So perhaps do not fill your boots, but also do not miss out on the chance to pick up real value when this is thrown up in the systemic chaos.


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