In the British Parliament, the votes are coming thick and fast and they all look the same. But none of them ends with an exit strategy and the prospect of a hard Brexit is still hovering over Great Britain like the ghost of Cromwell, that great and controversial politician. Incidentally, it is interesting to note that, in common with Theresa May, Cromwell faced a parliamentary revolt that he quashed. He was the one, too, who subjugated Ireland, which is experiencing resurgence in the electoral process, as it is the Northern Irish MPs of the Democratic Unionist Party (DUP) who are now calling all the shots in constituting the majority. Ultimately, it seems that the primary modern democracy, though still a monarchy, is facing the same problems it had five centuries ago. The lessons of history were, therefore, never learned.
In the markets, we are witnessing two contradictory movements. On the one hand, optimism prevails, despite numerous profit warnings from multinationals such as Infineon, Osram, DowDupont, etc. and the inversion of the American yield curve which, according to some, is a forewarning of imminent recession. And on the other, the roles played by secular stagnation and deflation are at an all-time high. Mario Draghi also expressed his concerns this week about the impact of the negative rates on banks’ cash deposited at the ECB (-0.4%), which costs the European banking system in the region of €8 billion per year. If this measure were to be adjusted in favour of the banks, this would provide an immediate and positive sign for the under-valued sector, which is also under-represented in portfolios. Outflows on European equities are ongoing ($4.8 billion). One explanation is that some investors want to take their profits before Brexit plays out.
Spring is on its way and the old stock-market adages, such as “sell in May and go away”, are being dusted off. However, macro-economic indicators are still not giving off any signs of a global recession.
Igor de Maack, Fund manager and spokesperson at DNCA. This article was finalised in March 29th, 2019.
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