The missile strike from Iran on US bases in Iraq was the de-escalation we had hoped for and Trump managed to fumble his way through an auto-cued speech to tell the world that he’d like to get a longer term diplomatic solution in place – He also said that Obama derived JCPOA deal that he walked away from is dead and that the UK, Germany, France, Russia and China should recognise as much – so it seems as though he wants a Trump branded deal in place. It will be a very tall order to get anything going between now and elections at the end of the year, so we feel like progress on that could be very limited.
US intelligence have said that they’re seeing encouraging reports that Tehran is instructing the militias that work for them not to hit US targets or civilians. That said, three rockets fell inside the green zone in Iraq last night, one very close to the US embassy, so maybe the message is taking time to get through.
US equity markets did pick up following Trumps remarks yesterday and oil is softening back off from the highs we saw at the start of the week. The Greenback remains pretty firmly planted though as the dollar index remains at it’s highest level for the year so far.
The FTSE100 remains slightly softer than the January open and yesterday’s trading was only marginally in the green as the reality of Brexit came to town (quite literally – Ursula von der Leyon and Michel Barnier visited Downing Street). There were encouraging words from Ms Von der Leyon – can we use an abbreviation here? is UvdL acceptable?! – who has a strong connection with the UK having studied here, lectured here and has three of her seven children at university here. the reality check once again came from Mr Barnier, who is pretty insistent that a trade deal done by 2020 is impossible.
The news from the high street isn’t going to be great as results start to get published, as the British Retail Consortium say that total retail spending fell by 0.9% in November and December (adding the months together smooths out the switch of Black Friday between November and December in previous years) It does seem like Britons enjoyed drowning their sorrows raising a glass or two over the festive season as Majestic Wine proved that bricks and mortar retail isn’t a downward spiral and put in some very encouraging growth numbers!
On a global level; there’s been such a big shift away from actively managed funds, that simple index linked funds have now exceeded $10 trillion under management. With global indexes putting in performances that far exceed normal economic growth, stock picking for the last few years has been a bit of an unnecessary skill – though this could quickly change…
The New York Fed have warned that the rise of investments into lower grade, higher yielding corporate debt could exacerbate a downturn if there is one. Only two US companies hold AA ratings (Microsoft and Johnson & Johnson) and a huge increase in BBB ratings. The Fed fears that if there were a downturn and subsequent downgrades, certain investors would be forced to sell their holdings of debt in companies that don’t meet their credit ratings demands, which would in turn force those companies into much higher debt servicing costs down the line. The FT has the long read, which is well worth it.
Rates are low globally and falling and even Argentina is getting in on the action – though from a very different end of the spectrum. The head of their central bank says interest rates there are likely to fall this year, as will inflation. Interest rates are currently 55%! but that is down from 85% at their peak last September. Inflation is on target to fall to 45% by the end of this year.
We should briefly mention the two and a half hour press conference that Carlos Ghosn gave yesterday – which was pretty theatrical, though we’re still not certain how the escape worked! We’re also no clearer on what is next in this story, but we know it’s going to be a long and interesting one. The BBC has a summary of what he said.
Have a great day