Investment Desk Bulletin

05 July 2017

Multi Assets: Conflictions and Confusions

IDB 05 07 17

By Roger Jones

In this week’s IDB, we take a global look at the first half of 2017; strong returns for many asset classes but several conflicting and confusing market conditions exist.

The first confliction that can be observed is that of the relationship between commodities and the US Dollar (USD). Previously inversely correlated, both are weakening and have been for the last 6 months in response to a fall in the price of oil and USD depreciation.

Another confliction is the positive returns of both gold and equities, which have a history of strong negative correlation. This has led to uncertainty among investors, who were previously more polarised between a bearish or bullish stance, but are now responding with a more neutral outlook.

There is a very different global growth environment post financial crisis, with significantly less volatility and narrow growth. This has been assisted by the Central Bank’s dampening rates and is backed up by the low global unemployment level, which has fallen and provides a concurrent indicator for GDP growth.

Over the last few weeks, central banks have been giving conflicting statements about changing rates. Despite this, the volume of QE undertaken by central banks is falling, and predicted to continue to fall. 

The investment community remains cautious and understandably confused. London & Capital are reacting to this unrest by proactively reducing risk across the spectrum, particularly in cyclical exposure in equities. However, we are not predicting a meltdown in risk asset or a global recessionary environment.