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MITON’S ANTHONY RAYNER: HOW IS GLOBAL POLITICAL RISK IMPACTING MARKETS?

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MITON’S ANTHONY RAYNER: HOW IS GLOBAL POLITICAL RISK IMPACTING MARKETS?
  • Market moves reflect losing faith in the reflation story
  • Will a more interventionist US foreign policy impact markets
  • Geopolitical risk is resulting in increased safe haven buying 

Anthony Rayner, manager of Miton’s multi-asset fund range comments:

“Economic momentum has been so strong that it has overshadowed other risks for the best part of a year. However, there is some evidence that economic momentum is now slowing, while geopolitical risk has started to dominate the headlines.

“Since the beginning of March, moves in equity markets, government bond markets and the US dollar have all been broadly consistent with markets losing faith in the reflation story.

“This is likely due to a number of factors: the hard data has had some weak points (though soft, i.e. survey, data remains broadly strong) and, after an unconvincing build up to repeal Obamacare, followed by a failure to repeal, markets have become less optimistic about Trump’s ability to press ahead with his growth-positive policies, such as tax reform.

“Historically, a gap between the hard and the soft data is not unusual, with the soft data tending to overshoot on the positive and the negative side. That said, the size of the current gap is unusual and will have to close at some point.

“Our observation would be that the soft data has been universally strong, and it’s pretty unusual for soft data not to be, at least partly reflected in the hard data, but the extent to which this is the case is unclear. Either way, the forthcoming earnings season will be more of a reality check than normal from a top-down perspective.

“Turning to US foreign policy, in the last few days the US has attacked a Syrian air base with cruise missiles and diverted an aircraft carrier towards North Korea. This US military response is inconsistent with the isolationist “America first” rhetoric that defined Trump’s campaign. However, in recent months there have been a number of other data points which are consistent with a more conventional US foreign policy, including the friendly dialogue with China and Europe, and the musical chairs within the foreign policy team, suggesting a less radical approach than had been originally indicated.

“Most likely an element of the actions by both Syria and North Korea was to test the response by the new US government, but they are also testing the resolve of their ‘backers’, Russia and China, respectively.

“All of a sudden, the US is more closely involved in two long term crises and, in the case of North Korea, there is genuine concern as to the combination of leadership sanity and access to powerful long range missiles.

“In short, the concept of “G zero” (an emerging vacuum of power in international politics) has been challenged and the global policeman looks like he’s back on the beat. It is far too early to draw too many conclusions: is Trump’s policy change best characterised as volatile or pragmatic? Will the latest moves add to uncertainty or actually lead to more stability? Will Trump realise he can achieve much more overseas than at home, and therefore be increasingly activist? Will Iran move on to the radar soon?

“The recent market reaction to heightened geopolitical risk has seen some safe haven buying, for example, gold, US Treasuries and the Japanese yen. Both of these recent developments are pushing markets in similar directions, away from risk assets. For us, we are awaiting more data points but remain pragmatic and ready to act.”

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FTSE Russell to include 11 stocks from China’s STAR Market in global benchmarks

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FTSE Russell to include 11 stocks from China's STAR Market in global benchmarks 1

SHANGHAI (Reuters) – Index provider FTSE Russell will add 11 stocks from China’s STAR Market to its global benchmarks, according to a post on its website from Friday.

The move marks the first time shares from Shanghai’s Nasdaq-style STAR Market for stocks in China have been included in a global index.

The 11 stocks include Raytron Technology Co Ltd, Zhejiang HangKe Technology Co Ltd, Montage Technology Co Ltd, Advanced Micro-Fabrication Equipment Inc China.

(Reporting by Josh Horwitz and Samuel Shen in Shanghai; Editing by William Mallard)

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UK insurers estimate to pay up to 2.5 billion pounds for coronavirus claims

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UK insurers estimate to pay up to 2.5 billion pounds for coronavirus claims 2

(Reuters) – The Association of British Insurers (ABI) said on Saturday insurers are likely to pay up to 2.5 billion pounds ($3.50 billion) for UK’s COVID-19 insurance claims incurred in 2020.

The latest estimates include 2 billion pounds for COVID-19 business interruption claims and 500 million pounds for COVID-19 related protection insurance claims, travel insurance claims and other general insurance products.

ABI’s Director General Huw Evans said in a release that the pandemic illustrated some uncomfortable gaps between what people expected to be covered for and what their policy was designed for.

“We need to learn lessons from this unprecedented event and redouble our efforts to improve consumers’ trust in insurance products,” he added.

The insurance trade body said 123,000 claims have been settled with payment so far and a further 9,000 have received partial payments as of mid-January 2021.

($1 = 0.7139 pounds)

 

(Reporting by Maria Ponnezhath in Bengaluru; Editing by Marguerita Choy)

 

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Oil extends losses as Texas prepares to ramp up output after freeze

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Oil extends losses as Texas prepares to ramp up output after freeze 3

By Devika Krishna Kumar

NEW YORK (Reuters) – Oil prices fell for a second day on Friday, retreating further from recent highs, as Texas energy companies began preparations to restart oil and gas fields shuttered by freezing weather and power outages.

Brent crude futures ended the session down $1.02, or 1.6%, at $62.91 a barrel while U.S. West Texas Intermediate (WTI) crude fell $1.28, or 2.1%, to settle at $59.24.

For the week, Brent gained about 0.5% while WTI fell about 0.7%.

This week, both benchmarks had climbed to the highest in more than a year.

“Price pullback thus far appears corrective and is slight within the context of this month’s major upside price acceleration,” said Jim Ritterbusch, president of Ritterbusch and Associates.

Unusually cold weather in Texas and the Plains states curtailed up to 4 million barrels per day (bpd) of crude production and 21 billion cubic feet of natural gas, analysts estimated.

U.S. energy firms this week cut the number of oil rigs operating for the first time since November, according to Baker Hughes data.

Texas refiners halted about a fifth of the nation’s oil processing amid power outages and severe cold.

Companies were expected to prepare for production restarts on Friday as electric power and water services slowly resume, sources said.

“While much of the selling relates to a gradual resumption of power in the Gulf coast region ahead of a significant temperature warmup, the magnitude of this week’s loss of supply may require further discounting given much uncertainty regarding the extent and possible duration of lost output,” Ritterbusch said.

Oil prices fell despite a surprise drop in U.S. crude stockpiles last week, before the big freeze hit. Inventories fell 7.3 million barrels to 461.8 million barrels, their lowest since March, the Energy Information Administration reported on Thursday. [EIA/S]

“Vaccines and the impressive rollouts we’ve seen have delivered strong gains, as have the efforts of OPEC+ – Saudi Arabia, in particular – and the big freeze in Texas, which gave oil prices one final kick this week,” Craig Erlam, senior market analyst at OANDA, said.

“With so many bullish factors now priced in, it seems we’re seeing some of these positions being unwound.”

The United States on Thursday said it was ready to talk to Iran about returning to a 2015 agreement that aimed to prevent Tehran from acquiring nuclear weapons. Still, analysts did not expect near-term reversal of sanctions on Iran that were imposed by the previous U.S. administration.

“This breakthrough increases the probability that we may see Iran returning to the oil market soon, although there is much to be discussed and a new deal will not be a carbon-copy of the 2015 nuclear deal,” said StoneX analyst Kevin Solomon.

(Additional reporting by Ahmad Ghaddar in London and Roslan Khasawneh in Singapore and Sonali Paul in Melbourne; Editing by Marguerita Choy, David Gregorio and Nick Macfie)

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