A Reprieve for Equity Investors but Tariffs Loom Large

Equities recovered last week and fixed income only suffered mild losses last week
The best performing asset class last week was Emerging Market Equities
Multi-asset class investors enjoyed above-average returns due to the spike in equity values
Commodities remained volatile and subject to the direction of oil prices
Within equities, US large cap ended up over 2% with Value strategies outperforming Growth by 2%
A 60/40 mix of purely US assets under-performed a global version but remains vastly ahead YTD

Currencies:

The USD slightly appreciated last week after the significant gain it had the week before
The South African Rand recovered over 1% as interest rates provide some support for the beleaguered currency
The British Pound gained almost 2% as BREXIT negotiations regained momentum and Sterling monetary policy becomes more normalized
The Mexican Peso tumbled as a left-leaning new President encounters economic difficulties and political fallout from US immigration policy

Commodity indices had a bad week due to the continued downtrend in oil prices
Oil prices dropped nearly 7% last week and are down over 15% over the last 20 days
On the flipside, grain prices have been recovering since the summer with soybeans, corn and wheat prices all up last week
Lumber prices continue being extremely volatile – lumber was up last week almost 10% but remains in a severe downtrend
Gold and Silver were stable last week for a change but barring a real crisis continue on a downward trend especially in light of higher short-term interest rates

Home bias keeps winning as multi-asset strategies with international assets have significantly underperformed
The strong USD is partly to blame but we do not see a significant reversal anytime soon as US monetary policy is being normalized
We still foresee one further rate hike in the US in December but fixed income market conditions have stabilized
Our view is that volatility is here to stay
- In fact, we see current asset class volatility as normal
We are also watching out for any strong jump in inflationary expectations
- Tariffs are inflationary and will be reflected in higher consumer prices eventually
EM equities, in particular, are taking a huge hit both on the asset side as well as currency – this is turning out to be a lost year for EM investors
- We still believe that an allocation is warranted

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Eric J. Weigel

Global Focus Capital LLC

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