The Fed has rekindled investor anticipations of a potential rate hike during the summer, reversing some of the trends observed over the past few months. Interest rates steepened temporarily, while the dollar rallied and equity markets came under pressure. Major potential economic risks (US recession, renminbi unpegging and a downturn in European momentum) effectively failed to materialise during the first half of the year. However, global growth over the past two quarters is not flourishing, at close to 2.5%, which hardly inspires unbridled confidence for the future. European equity markets are at a standstill, at least in terms of trading volumes, like a lake caught in the first winter freeze ahead of the UK Brexit referendum.
Market sentiment currently hinges on the opinion polls, which appear, in the case of phone surveys at least, to be indicating a marginal advantage to the “Bremain” camp. Admittedly no-one, particularly among non-voting commentators, can predict the outcome of the ballot at this stage.
From an economic standpoint, the advantages gained by exiting the single market are hard to identify, particularly for an economy which is already deregulated while also benefitting fully from its commercial partnership with the European Union. For the time being, non-European investors (i.e. from the US) have put decisions on hold, as have certain companies which have adopted a wait-and-see attitude before instigating investment programmes in the UK.
On the other hand, others have launched M&A deals in the oil services sector, like Technip and FMC Technologies. These two companies announced their merger, along with a decision to relocate their head office in…London, discounting the consequences of a possible Brexit.
One thing remains certain after 23 June however. Britain will still be an island and Europe a continent. Let us not forget that the British national anthem starts with “God save the Queen”, but also ends the second verse with the plea “God save us all”.
Igor de Maack
, Fund manager and spokesperson at DNCA. This article was finalised in May 20th, 2016.
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