Weekly Market Update – 15 July 2019

GLOBAL COMPOSITE LEADING INDICATOR

Large margin of error

The boffins over at the Paris-based Organisation for Economic Cooperation and Development (OECD) have released the results of their latest reading of the runes. As usual, their conclusions are drawn together in a single Composite Leading Indicator (CLI) – a mixed analysis ‘designed to anticipate turning points in economic activity relative to trend six to nine months ahead’.

Their latest announcement states…
‘Among large OECD economies, only Japan and Canada have seen a change in assessment this month (to stabilising growth momentum from easing growth momentum last month) while in the United Kingdom last month’s tentative signals of stable growth momentum have now been confirmed, although large margins of error exist due to continuing Brexit uncertainty.

Among other major OECD economies, the CLIs continue to anticipate stable growth momentum in France and easing growth momentum in the United States and the euro area as a whole, particularly in Germany and Italy.

Among major emerging economies, the CLIs continue to anticipate stable growth momentum in China (in the industrial sector), India and Russia, and now also in Brazil’.

Overall, then, the outlook isn’t too bad. Well, it’s not exactly good, but it certainly isn’t bad.

Let’s hope they are right.

UK ECONOMIC OUTPUT

Still good value

There’s a good chance that British economic output declined during the second quarter of this year. If that turns out to be the case, brace yourself for front-page recession stories.

Last week, the Office for National Statistics suggested that growth in the three months to May increased just 0.2% following a 0.0% reading for the three months prior. That is consistent with the Bank of England’s reading…

‘Growth in the second quarter will be considerably weaker, in part due to the absence of that stock building effect and Brexit-related, temporary shutdowns by several major car manufacturers. Recent data also raise the possibility that the negative spillovers to the UK from a weaker world economy are increasing and the drag from Brexit uncertainties on underlying growth here could be intensifying. The latest surveys point to no growth in UK output’.

I reckon that if we all spent enough to eke out a 0.3% increase in output during the month of June, the second quarter ought to come in on a positive note. If we kept our collective hands in our pockets we’ll likely see a small decrease in output, giving rise to fears for a recession.

Of course, there are recessions and there are recessions. If we are to witness a recession, it seems likely that the requisite consecutive quarterly declines will prove slight; we see few credible forecasts for anything other than a short and shallow decline. That could change with the fullness of time, of course. For now though, We see little reason for investors in UK assets to be concerned. UK equities in particular have already priced in a great deal of uncertainty and still
offer, in our view at least, very good value indeed.