U.K. equities have generally underperformed its global peers consistently over the last decade.  The FTSE All Share has experienced a compound annualized growth rate (CAGR) of 4.7% and 7.3% over the last 5 and 10 years respectively.  In comparison, the Russell 1000 CAGR over this same period is 16.5% and 14.9%, while the Datastream World Market CAGR is 11.1% and 9.9% respectively. The start of 2022 has been one of the most volatile on record which we highlight in a prior note (Data Insight: A Turbulent Start to the Year for Global Equities, January 27, 2022).  To this point, the

The United Kingdom plans on exiting the European Union by Jan. 31, 2020, which will be the third time Brexit has been delayed. Uncertainty around Brexit has profoundly impacted business and consumer decisions and sentiment. The U.K. economy has slowed with 2020 real GDP growth expectations declining from 1.6% to 1.1%.  Manufacturing activity has declined as businesses adjusted to uncertain Brexit outcomes, while trade tensions between U.S. and China only further complicated future investment decisions.  Business sentiment in the U.K. has been on a secular decline with the latest index reading reaching lows not seen since the original referendum. Sterling

US-listed firms that derive a significant share of their revenue in China have significantly underperformed their peers in 2018. Fathom’s China Exposure Index (CEI) peaked at 117.3 on 22 March, the day that the US first announced that it would impose tariffs on imports from China; it has now dropped to 100.1, meaning that firms in the CEI have underperformed their US-listed peers by 15% since then. Sino-US trade tensions, a weakening renminbi and China’s slowing economy explain the underperformance. An easing of such trade tensions, and a firm commitment by China to open its markets to US firms, would

In putting together its relatively upbeat August Inflation Report projections for the UK economy the MPC made two key assumptions. First, it assumed that there would be a smooth adjustment to a new set of trading arrangements following the UK’s departure from the EU next March. Second, it assumed that the UK household saving ratio would remain close to an all-time low. The risks around both of these judgments lie in one direction, and that is to the downside. Last year lenders came under pressure from the Bank of England’s Financial Policy Committee to reduce the risks to their loan

Fathom’s UK Economic Sentiment Indicator (ESI), which distils information from a wide range of business and consumer surveys, eased from 0.6% in May to 0.5% in June. Optimism among manufacturers remained high, but there was a further deterioration in sentiment among consumer-facing service sector firms. Refresh the chart in your browser | Edit chart in Datastream At its meeting on 2 August, the Bank of England’s Monetary Policy Committee voted, as expected, to increase Bank Rate by 25 basis points to 0.75%. In our judgement, with Brexit-related uncertainty continuing to weigh on economic activity, UK growth will turn out significantly weaker than

At its meeting on 2 August, the Bank of England’s Monetary Policy Committee voted unanimously to increase Bank Rate by 25 basis points to 0.75%. That was the first move since last November. The tone of the accompanying Inflation Report was hawkish, with inflation overshooting its target, and with growth running at around 1¾% per annum throughout the three-year forecast horizon. Refresh the chart in your browser | Edit chart in Datastream In putting together its projections, the MPC made two key assumptions: that there would be a smooth adjustment following the UK’s exit from the EU next March; and that the

Fathom Consulting’s proprietary liquidity indicator, the FLIQ, points to a drop in market liquidity amid Federal Reserve rate hikes and quantitative tightening. The FLIQ is calculated by looking at the price of closed-end funds (CEFs). It is designed to provide a timely and intuitive assessment of aggregate financial market liquidity risk. By their nature, CEFs will tend to trade at a discount to the value of the underlying assets (their net asset value, or NAV). By measuring the size of this discount, relative to its historic average, we can obtain an estimate of the abundance, or the scarcity of market

Fathom’s measure of China’s economic activity, its CMI 2.0, continued its descent in May, slowing to a 15-month low of 6.2%. Refresh the chart in your browser | Edit chart in Datastream Below the official estimate of GDP growth, which was 6.7% in the second quarter, the widening wedge between Fathom’s measure and the official measure is increasingly reminiscent of the gap that emerged in late 2013 – 2015. Back then, just as they are now, the Chinese authorities used monetary stimulus to support short-term growth, repeatedly cutting banks’ reserve ratio requirements while denying that the economy was materially slowing. Refresh the

On average, since its inception, the euro area has experienced weaker consumer price inflation than the UK. Interestingly, the inflation differential has widened since the Global Financial Crisis, with the gap averaging almost one percentage point since 2008. Refresh the chart in your browser | Edit chart in Datastream With the inflationary impact of the post-Brexit sterling depreciation beginning to ebb, and with rising energy prices accounting for a larger proportion of the euro area’s CPI basket than the UK’s, that inflation differential has narrowed more recently. Fathom’s Inflation Trends (FIT) model points to a further narrowing this year, as UK inflation

After a prolonged period of tapering, the ECB finally appears ready to draw the curtains on its quantitative easing programme. At last month’s policy meeting, the ECB announced its intention to halve the pace of net asset purchases to €15bn per month after September and to conclude net purchases altogether by the end of the year. Despite the drawn-out tapering process, which by completion will have spanned almost two years, the ECB’s asset purchase programme has not been in operation for as long as those in other advanced economies, only beginning in earnest in March 2015. Refresh the chart in

Fathom’s Sovereign Fragility Index (SFI) – an objective measure of fundamental sovereign credit risk across the world’s major economies – was updated for 2018 Q1 last Friday and is now available on Thomson Reuters Chartbook. Refresh the chart in your browser | Edit chart in Datastream Three countries saw their fragility increase from already high levels on the quarter: in order, these were Russia, Turkey and South Africa. That pattern of increasing fragility is reminiscent of the period of Fed tightening after 1994, when capital began to flow back into the US, triggering a wave of sovereign crises across emerging economies. Greece

This month’s UK general election result was an unmitigated disaster for the Conservative party. Indeed, it is hard to envisage a messier outcome. Weak and wobbly is the new strong and stable. Having failed miserably to deliver her campaign soundbite, Theresa May would typically have been expected to resign, as her predecessor, David Cameron, did after his unsuccessful attempt to secure a Remain victory in last year’s EU referendum. However, May has displayed the tenacity of a pitbull[1] in holding on to the keys of number 10 Downing Street, and her backbenchers, well-known for their ruthlessness in getting rid of