9 to 15 April: New Normal

After a vicious rally and equally potent sell-off at the start of this year, equity markets have oscillated uneasily with no clear direction. Our view remains that we are in a new regime. The economic cycle has matured, with the US late cycle, and although some emerging countries remain in a “sweet spot”, the general picture is now of higher volatility and a more classical inverse relationship between bonds and equites. Of course, every period of history has its own peculiarities. Today, the unorthodox and tweet-based interventions of the US president represent such a variable, with the ability to shape market direction over a daily time window. In this sense, last week was a good representation of the paradigm we think markets are in; equities rising over the week, bonds modestly lower and the overall direction punctuated by political soundbites. Actually, there was a more sinister tone to the news flow with tensions building between the US and Europe on one side and Russia on the other over an alleged chemical weapons attack by the Assad government in Syria. This led to an allied response of more than 100 missiles on government facilities in the early hours of Saturday morning. Whilst Russia condemned the attacks, it stopped short of using its air defences or threatening retaliation.

Elsewhere, oil prices posted a strong rally (best weekly performance in 8 months) rising to their highest level since 2014. Latest gains came amid the rising geopolitical tensions in the middle east and an IEA report that estimated global inventories have fallen back to their 5-year average. However, they were in spite of US crude production touching a record high, with output now greater than that of Saudi Arabia, and the US rig count still rising.

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