Shares Magazine - May 24, 2018

AEQUITAS

38 | SHARES | 24 May 2018

Insightful commentary on market issues

T

his week’s column is indebted to two

charts from Fidelity’s vastly experienced

fund manager Ian Spreadbury at a recent

conference. This is not to put words into Mr

Spreadbury’s mouth – he needs no help on that

front – and any views expressed here are strictly

those of this column, but credit must be given

where credit is due.

dŚĞĮƌƐƚĐŚĂƌƚƐŚŽǁƐƚŚĞLJŝĞůĚŽŶƚŚĞ

benchmark 10-year US Treasury (US government

bond) which could be seen as a decisive break-

out above the 3.05% level.

dŚĞƌĞĂƌĞƚŚƌĞĞƉŽƐƐŝďůĞĞdžƉůĂŶĂƟŽŶƐĨŽƌƚŚŝƐ

ĂƉƉĂƌĞŶƚƐŚŝŌŝŶďŽŶĚŵĂƌŬĞƚŵŽŵĞŶƚƵŵ͗

• &ŝdžĞĚͲŝŶĐŽŵĞŝŶǀĞƐƚŽƌƐĂƌĞƐƟůůǁĂƌLJŽĨƚŚĞ
  ƉŽƚĞŶƟĂůĨŽƌŝŶŇĂƟŽŶƚŽƐƵƌƉƌŝƐĞƚŽƚŚĞ
  upside, especially as oil prices march higher.


• ŶĂŶŶƵĂůh^ďƵĚŐĞƚĚĞĮĐŝƚƚŚĂƚŝƐĞdžƉĞĐƚĞĚ
  to reach $804bn in the year to September
  2018 and $981bn to September 2019,
  compared to $665bn in 2017. The US
  'ŽǀĞƌŶŵĞŶƚŚĂƐƚŽƐĞůůŵŽƌĞďŽŶĚƐƚŽĮůůƚŚĞ

What can investors learn from recent market movements?

Four links in the global

financial market chain have

weakened: which is next?

gap and greater supply means it may have to

ŽīĞƌĂŚŝŐŚĞƌĐŽƵƉŽŶƚŽƚĞŵƉƚďƵLJĞƌƐ͘

• The US Federal Reserve’s switch from
  ƋƵĂŶƟƚĂƟǀĞĞĂƐŝŶŐ;YͿƚŽƋƵĂŶƟƚĂƟǀĞ
  ƟŐŚƚĞŶŝŶŐ;YdͿ͘dŚĞ&ĞĚǁŝůůƌĞĚƵĐĞYďLJ
  $30bn a month this quarter, $40bn a month
  from July and $50bn a month from September.
  dŚĞĞŶĚŽĨYƌĞŵŽǀĞƐĂŚƵŐĞďƵLJĞƌĨƌŽŵƚŚĞ
  bond market just when supply is going up.

Where US 10-year yields end up remain to be

seen. Yet it may not be a coincidence that certain

ƌŝƐŬŝĞƌĂŶĚŵŽƌĞƐƉĞĐƵůĂƟǀĞĂƌĞĂƐŽĨƚŚĞĮŶĂŶĐŝĂů

markets appear to be coming under duress just

as the returns from a purportedly safe asset (and

one priced in the globe’s reserve currency for

ŐŽŽĚŵĞĂƐƵƌĞͿƐƚĂƌƚƚŽůŽŽŬŵŽƌĞƚĞŵƉƟŶŐ͘

FOUR QUICK HITS

/ŶƋƵŝĐŬƐƵĐĐĞƐƐŝŽŶ͕ďŝƚĐŽŝŶ͕ůŽǁͲǀŽůĂƟůŝƚLJƚƌĂĚŝŶŐ

ƐƚƌĂƚĞŐŝĞƐ͕ŚŝŐŚͲŇLJŝŶŐƚĞĐŚŶŽůŽŐLJƐƚŽĐŬƐĂŶĚ

now emerging markets (and especially emerging

market currencies) have at least stumbled or in

some cases been routed.

,^d,z/>KEϭϬͳzZh^dZ^hZ/^

DECISIVELY BROKEN OUT TO THE UPSIDE?

/dK/E,^dhD>E>KtͳsK>d/>/dz

STRATEGIES HAVE BEEN CAUGHT OUT

Source: Thomson Reuters Datastream

Source: Thomson Reuters Datastream