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Rathbones' Market Commentary

Posted Wednesday, 28 September 2016, 8.53am

David Coombs
Caption: David Coombs

“UK Parliament resumes this month, and the political chatter has already returned. How peaceful it was over the past few weeks …

It really was though, with market volatility sinking into a sleepy doze that allowed markets to creep ever higher. The S&P 500 made a new all-time high. That is likely to change now the politicians have returned.

Apart from the inevitable – and likely inconclusive – Brexit talk, the most anticipated UK political event must be chancellor Philip Hammond’s first autumn statement which will be on 23 November. This spending review will “reset” UK fiscal policy, according to Mr Hammond. Exactly what that means is open for debate, but the strength (or weakness) of the UK economy over the next few months should offer some clues.

And as the summer fades, other political set-pieces will come to trouble markets too.

Spanish acting prime minister and leader of the centre-right People’s Party Mariano Rajoy has consistently failed to negotiate a coalition since the nation’s June election. It seems that time has run out and another ballot is on the cards. This will be Spain’s third in nine months.

Italian prime minister Matteo Renzi faces a referendum to change his country’s constitution in the hope of making future governments more stable. Mr Renzi’s proposal would dramatically cut the number of senators to 100 from 315, as well as greatly curtailing the upper house’s power. In an all-or-nothing gamble, he has promised to resign if he is unsuccessful. Failure could leave the door open to the radical and anti-EU Five Star Movement.

In the US, the polls are a lot more one-sided. Democratic nominee Hilary Clinton is trouncing Republican contender Donald Trump, according to surveys. However, there is still more than enough time for a turnaround or further embarrassment for Ms Clinton – especially as concerns about her health escalate following revelations she has pneumonia. Mr Trump’s poll numbers were improving before Ms Clinton was taken ill. This furore offers yet more opportunity for him to denigrate his opponent.

While we cannot influence these political factors, we are keeping an eye on them. Mostly, however, we have been mindful of increasing correlations between asset classes and ensuring the quality of the assets we hold. These are things that we can – and do – adapt to.”

David Coombs, Head of Multi-asset Investments, Rathbones

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