Bullish sentiment begins to ring alarm bells
The new year is starting up with a dynamic in global capital markets that even the bulk of the optimistic forecasts had not anticipated. This is somewhat at odds with the UK’s domestic situation where another miscalculation by the government’s leadership, resulted once again in the exact opposite effect to the one it aimed to achieve. Gloomy news of contracting Christmas sales volumes on the UK’s high streets, the strained NHS buckling under a particularly severe winter cold and flu season and even worse than normal train commuter misery in the South East rounded the picture of a fairly miserable start the year. Had it not been for the reports of record manufacturing and export figures one might have thought the UK had de-coupled from the rest of the world.
Corporate earnings season outlook
The Q4 2017 corporate earnings results announcement season officially kicks off this week with companies set to release their final profit figures for 2017. The first major announcements come late on Friday with several major US banks including JPMorgan and Wells Fargo set to declare. In the run-up to the announcements market analysts jostle to publish their predictions for each 4 company, the aggregate of which forms market consensus (regular readers of Tatton’s Weekly will be familiar).
CAPE and the valuation fear
Over the past few months, the dominant fear of investors has been the ‘valuation’ worry. Equity valuations, particularly in the US, have endured such a long and dramatic upward phase that valuations are now overstretched and due a correction, goes the argument. Various data points supposed to back this up have been pointed to, including the flattening of the US yield curve and talk of the ‘end of the cycle’.
Poor UK Christmas sales vs booming exports
Last week, we discussed how external, rather than internal, demand was providing additional support to the UK economy. That demand split has become more apparent now, as the data indicates that manufacturing is benefitting from a strong export market, while, conversely, domestic demand is dwindling.
Cryptocurrencies: definitely cryptic, but not (yet) a currency?
Toward the end of 2017 one of the topics dominating the festive-season gatherings was Bitcoin. Firstly, the increasing valuation of Bitcoin had people wondering whether they were “missing out” on something, and (only) secondly, people began to discuss the basis of Bitcoin and other socalled cryptocurrencies.
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