Nicholas Hyett, Equity Analyst 31 May 2019
Bill Clinton’s campaign strategist James Carville, posted “It’s the economy, stupid” on the office walls during the 1992 Presidential campaign. Unfortunately the current generation of politicians rather seem to have got it backwards.
More often than not in 2019, when asked to explain market movements, economists and analysts have simply had to sigh and shrug – “It’s politics, stupid”. June looks set to follow the trend, with very little genuine corporate action to keep financial commentators (ourselves included) from gazing confusedly into political crystal balls and scratching their heads.
UK politics – Rumbling on
It would have been nice to get through at least one of the 2019 ‘look aheads’ without a section on UK politics. Unfortunately it’s not yet to be.
A disastrous European election for the Conservative Party means much of the next month will be spent working out who will be the next leader and ultimately Prime Minister. The result will have profound effects for what happens with the UK’s relationship with Europe and more.
Outcomes range from a hard Brexit in October to a second referendum or even a general election. In short, pretty much all options are back on the table.
We’ve given up making our predictions about what will happen next. With the pound rising in the immediate aftermath of Theresa May’s resignation last week, even predicting which way the market will move on certain items of newsflow is a challenge. Nonetheless which way the political winds blow will inevitably have a significant impact on where we are in 30 days’ time.
G20 – The bigger picture
But it’s not just UK politics which should occupy investors’ thoughts in June. For many global businesses the current state of UK politics, while far from ideal, is still a minor concern. There’s always a political crisis going on somewhere in the world.
Of far greater consequence in the long term is the trade dispute between China and the US, which threatens the entire systems on which global trade is currently built. All being well, June will see Presidents Donald Trump and Xi Jinping meet at the G20 summit in Japan.
The current dispute has seen tariffs on various products raised tit-for-tat. While hopes for a thawing in relations aren’t exactly high, progress would likely be positively received by global stock markets. Definitely something to look out for as we get towards the end of the month.
Life insurance – A painless break-up
At last some genuine corporate activity!
Ok, so the life insurance sector may not get everyone as excited as it does us – although our recent article on the sector could help on this – but there may be some big news early in the month.
Break ups have been an increasingly common feature of the life insurance industry in recent years, with Standard Life handing its life insurance business to Phoenix and Prudential midway through splitting its international and UK arms. It now looks like Aviva could be joining the party.
Media reports suggest new CEO Maurice Tulloch is considering splitting Aviva’s life insurance and general insurance businesses in two. While both will stay under the Aviva umbrella – making this a very different scenario to others in the sector – it would still represent a significant change of strategy. Cross-selling insurance products had been a major focus, and splitting units suggests this may be taking a back seat.
Aviva’s due to update the market on its plans on 6 June. It’s a last blissful piece of financial nitty gritty to bury your head in before Theresa May’s official resignation the next day.
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