Investor Insights: November letter from the MD
After this month’s historic events, markets have had good reason to feel rattled. But in the aftermath of Trump’s accession and the recent Brexit-themed High Court ruling in the UK, there are signs of moderate stability.
Initial market reactions to Trump’s victory were negative across the board. Naturally, demand for safe haven assets rose:
- gold prices surged by 5%
- silver rose by nearly 3%
- the drop in US Treasury yields (which move inversely to price) was one of the largest since June’s EU Referendum
However, the British Pound has been an unsurprising beneficiary in the immediate aftermath of the election result, rising 2% against the US dollar by the end of election week. Considering the shock of the result markets have returned to relative calm and new highs.A large question mark remains as to what a Trump Presidency means for the UK, the economy, our transatlantic relationships, and our property and investment markets. Equally we must wait and see what effect it may have on our journey towards Brexit.
Another Brexit battle
Closer to home, the UK had its own battle on constitutional terrain. On 3 November, three senior judges in the High Court ruled that the British Government cannot use Royal Prerogative to trigger Article 50 and must seek Parliamentary approval first.While the High Court ruling is unlikely to prevent Brexit from happening, it is likely to delay it. The market’s initial reaction was positive because it is largely seen as a manoeuvre to prevent a ‘hard’ Brexit and potentially strengthens the case to stay in the single market. Yet, it does also pave the way for increased political uncertainty, which the markets may not take lightly over the coming months. The odds for a general election in 2017 have now shortened considerably, and current popularity polls indicate that Theresa May could, in that instance, secure a substantial majority in the House of Commons.
The High Court’s decision succeeded to overshadow the Bank of England’s monthly interest rate decision and inflation report that came out on the same day.The Bank’s MPC has forecast inflation to peak at 2.8% in 2017 and added that there are limits to what it will accommodate without taking monetary policy action. What action they will take is unclear, but we can be near-certain that the next base rate move is likely to be up, rather than down. This has pretty much extinguished market expectations that the Bank would lower the rate to 0.10% by the end of this year.
Official government figures also confirmed that the economy grew by 0.5% between June and September, beating analyst consensus and providing some assurance that the economy built up steam heading into the final quarter of the year. As a result, the Bank of England revised its 2016 growth expectation up to 2.2% and 2017 growth to 1.4%. Unemployment continues to hold at 4.9% and the pound’s general devaluation since the referendum continues to help domestic producers on the international stage.
Buyers return to property market
The last piece of news to move the needle so far this month is the finding in the Bank of England’s Credit Conditions Survey that overall lending dropped between 1 July and 30 September. However, markets weren’t too shocked, taking into account the Referendum vote and subsequent decisions by businesses and consumers to delay significant transaction decisions. The Bank also reported that mortgage approvals in September rose to around 63,000, growth of +3.2% on August, suggesting buyers are returning to the market. That theme is further evidenced by housebuilders, who are reporting an increase in site visits and reservations.
In the aftermath of Trump’s victory over Clinton the hunt for clarity and confidence in the global markets continues, helped along by some moderate market stability. What this means for UK property as we look ahead to the new year remains to be seen. First, we will see what appears in the new Chancellor’s first Autumn Statement tomorrow. Insiders predict that the Statement will be “light on policy”, as the Treasury prefers to hold back major announcements for the main Budget announcement next Spring.Meanwhile, the property and housing associations we interact with are lobbying for an easing of restrictions enforced on landlords over the last 12 to 18 months. A principal focus is the 3% additional stamp duty tax levy, which has made the Treasury an extra £600 million since its introduction in April. The hope here is to facilitate a return to a more liquid and buoyant rental sector. Kind Regards, Rod Lockhart, Managing Director at LendInvest Capital