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Commenting on the results of the UK general election, Noland Carter, CIO and Head of Heartwood Investment Management, said

  • “Despite the political headlines, markets are taking the news of a hung parliament reasonably well and there has been no major knee-jerk reaction so far this morning. Sterling fell on the announcement of the exit poll, but the currency has since stabilised as parliamentary results have been confirmed.
  • “We cannot discount the risk of a second General Election, although Theresa May’s Government will try and muddle through, propped up by the Democratic Unionist Party (DUP).
  • “Clearly this is an uncertain political environment, but this election result does not fundamentally change the UK outlook in the shorter term. From the market’s perspective, a worst case scenario outcome has been avoided of a high tax and high spend economic programme, which would create an unfriendly environment for UK-based corporates. While markets are less fearful of this scenario, it remains a very fluid situation.
  • “Brexit is now the primary focus. The key date coming up is the 19th June when negotiations formally begin. It is not yet clear what stance the Government will take. The talks are timetabled to last 15 months. The first six months are expected to focus on settling the issues of citizens’ rights, the UK’s divorce bill (some estimate at around £100 billion) and the border with Ireland. Assuming the EU 27 believes sufficient progress has been made on these issues, the next nine months will be spent on negotiating the future trade deal. Transitional arrangements will be discussed for the period the UK leaves the single market and the customs union in March 2019. Any EU-UK trade deal is expected to be finalised and ratified some years after. All of this has been placed under great uncertainty. Before this election, the UK was on course for a ‘hard but smooth’ Brexit. However, we may now be on course for a ‘hard but rough’ landing.
  • “Under a Conservative government in alliance with the DUP, the fiscal rules set out in the autumn 2016 Budget are unlikely to shift too much and we expect fiscal continuity. The Conservative government had already announced a slower pace of deficit reduction and fiscal austerity in the autumn budget and this is something that the DUP would support, based on its opposition to the Winter Fuel Allowance and Triple Lock pensions commitment. The current aim is to balance the budget by 2025.
  • “The election outcome is unlikely to have much impact on Bank of England policy in the shorter term, which remains accommodative to support overall economic activity. Policymakers are concerned about downside risks to growth as consumers feel the squeeze of falling real incomes. However, the Bank has also expressed its limited tolerance level for above-target inflation and has signalled that policy can move in either direction. That being said, we expect that the recent fall in oil prices and stabilisation in sterling should relieve some inflationary pressures and, therefore, ease the real income squeeze on consumers.
  • “From a longer term economic policy perspective, there has been a notable policy shift across a number of developed economies to find ways to improve productivity growth, which has weakened due to the impacts of ageing demographics and new technologies on the labour force. There are wide ideological differences between the two major UK parties on how these economic challenges are tackled, but after years of austerity and with the rise of populism there is a consensus that more investment is needed in infrastructure, research and development and up-skilling the workforce.
  • “We are taking no immediate actions in portfolios and remain underweight in UK assets. We have an underweight allocation to UK equities, as we believe that other developed markets hold more attractive value. Within the UK equity market, our bias is towards larger companies, which have performed well over the last year and have benefited from the depreciation of sterling. The scale of the imbalances of the UK economy – large current account and budget deficits – keeps us underweight in both sterling and UK government bonds on a duration basis. We also have an underweight position in UK commercial property, where we hold preference for areas of the market that are less sensitive to Brexit risk, such as regional UK cities.
  • “While the focus is on the UK, it is worth remembering that the other 92% of global GDP is largely unaffected by this news. Based on our assessment of global growth drivers and inflation dynamics, not to mention policy tailwinds, we retain a modestly optimistic stance on global risk assets. We continue to think that the fundamental backdrop remains constructive for financial markets and corporate earnings globally.
  • “Events are fluid and we are monitoring political, economic and market developments closely.”


UK earmarks a further $2.3 billion for its COVID vaccine push



UK earmarks a further $2.3 billion for its COVID vaccine push 1

LONDON (Reuters) – British finance minister Rishi Sunak will announce an extra 1.65 billion pounds ($2.30 billion) to fund the country’s fast vaccination rollout as part of his annual budget statement on Wednesday, the finance ministry said.

“Protecting ourselves against the virus means we will be able to lift restrictions, reopen our economy and focus our attention on creating jobs and stimulating growth,” Sunak said in a statement.

Britain has so far given a first vaccination more than 20 million people, or more than one in three adults, Europe’s fastest vaccination rollout.

“The new money will continue to vaccinate the population and ensure every adult is offered a dose of a vaccine by July 31,” the ministry said.

A further 33 million pounds will be spent on vaccine testing and development to protect against future outbreaks and variants and 22 million pounds will fund a study to test the effectiveness of combinations of different COVID-19 vaccines.

(Writing by William Schomberg; editing by Philippa Fletcher)

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Wall Street Week Ahead: Investors weigh new stock leadership as broader market wobbles



Wall Street Week Ahead: Investors weigh new stock leadership as broader market wobbles 2

By Lewis Krauskopf

NEW YORK (Reuters) – A shakeup in stocks accelerated by the past week’s surge in Treasury yields has investors weighing how far a recent leadership rotation in the U.S. equity market can run, and its implications for the broader S&P 500 index.

Moves this week further spurred a shift that has seen months-long outperformance for energy, financial and other shares expected to benefit from an economic recovery, while a climb in Treasury yields weighed on the technology stocks that have led markets higher for years.

The two-track market left the benchmark S&P 500 down for the week, and sparked questions about whether it could sustain gains going forward if the tech and growth stocks that account for the biggest weights in the index struggle.

So far this year, the S&P 500, which gives more influence to stocks with larger market values, is up 1.5%, while a version of the index that weights stocks equally is up 5%.

“That just tells us the gains are less narrow, more companies are participating, and I think that’s healthy,” said James Ragan, director of wealth management research at D.A. Davidson.

The focus on market leadership comes as investors are weighing whether the S&P 500 is due for a significant pullback after a 70% run since March, with the rise in long-dormant yields the latest sign of trouble for equities as it means bonds are more serious investment competition. The yield on the 10-year U.S. Treasury note this week jumped to a one-year peak of 1.6% before pulling back.

Economic improvement will be in focus in the coming weeks, including the monthly U.S. jobs report due next Friday, as will the country’s ability to ensure widespread coronavirus vaccinations, especially as new variants emerge.

Tech and momentum stocks helped drive returns in 2020 “when everyone was locked down and all they had was their computer,” said Jack Ablin, chief investment officer at Cresset Capital Management. “Now it seems with the vaccines, the stimulus and the prospect of reopening that we are looking out toward a recovery phase.”

The shift in the market this week is building on one that was fueled in early November, when Pfizer’s breakthrough COVID-19 vaccine news generated broad bets on an economic rebound in 2021.

Among the moves since that point: the S&P 500 financial and energy sectors are up 29% and 65%, respectively, against a nearly 9% rise for the benchmark index and 7% rise for the tech sector. The Russell 1000 value index has gained 16.5% against a 4.3% climb for its growth counterpart, while the smallcap Russell 2000 is up 34%.

“You definitely are seeing the reopening trade that has pretty much come alive here,” said Gary Bradshaw, portfolio manager of Hodges Capital Management.

Despite the gains, there remains “plenty of room for the reflation trade to run from a valuation perspective,” Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets, said in a report this week. RBC is “overweight” the financials, materials and energy sectors.

Rising rates tend to be favorable for more cyclical sectors, David Lefkowitz, head of Americas equities at UBS Global Wealth Management, said in a note, with financials, energy, industrials and materials showing the strongest positive correlations among sectors with 10-year Treasury yields.

Still, how long the market’s reopening trade lasts remains to be seen. Investors may be reluctant to stray from tech and growth stocks, especially with many of the companies expected to put up strong profits for years.

Any setbacks with the economy or with efforts to quell the coronavirus could revive the stay-at-home stocks that thrived for most of 2020.

And with a GameStop-fueled retail-trading frenzy taking hold this year, banks and other stocks in the reopening trade may fail to draw the same attention from amateur investors as stocks such as Tesla, said Rick Meckler, partner at Cherry Lane Investments.

“There isn’t the pizzazz to those stocks,” Meckler said. “There rarely is a potential for stocks to make the kind of moves that big tech growth stocks have made.”

(Reporting by Lewis Krauskopf; editing by Richard Pullin)

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Exclusive: European officials urge World Bank to exclude fossil-fuel investments



Exclusive: European officials urge World Bank to exclude fossil-fuel investments 3

By Kate Abnett and Andrea Shalal

WASHINGTON (Reuters) – Senior officials from Europe have urged the World Bank’s management to expand its climate change strategy to exclude investments in oil- and coal-related projects around the world, and gradually phase out investment in natural gas projects, according to three sources familiar with the matter.

In the six-page letter dated Wednesday, World Bank executive directors representing major European shareholder countries and Canada, welcomed moves by the Bank to ensure its lending supports efforts to reduce carbon emissions.

But they urged the Bank – the biggest provider of climate finance to the developing world – to go even further.

“We … think the Bank should now go further and also exclude all coal- and oil-related investments, and further outline a policy on gradually phasing out gas power generation to only invest in gas in exceptional circumstances,” the European officials wrote in the letter, excerpts of which were seen by Reuters.

The officials took note of the World Bank’s $620 million investment in a multibillion-dollar liquified natural gas project in Mozambique approved by the Bank’s board in January, but did not call for its cancellation, one of the sources said.

The World Bank confirmed receipt of the letter but did not disclose all its contents. It noted that the World Bank and its sister organizations had provided $83 billion for climate action over the past five years.

“Many of the initiatives called for in the letter from our shareholders are already planned or in discussion for our draft Climate Change Action Plan for 2021-2025, which management is working to finalize in the coming month,” the Bank told Reuters in an emailed statement.

The Bank’s first climate action plan began in fiscal year 2016.

The United States, the largest shareholder in the World Bank, this month rejoined the 2015 Paris climate accord, and has vowed to move multilateral institutions and U.S. public lending institutions toward “climate-aligned investments and away from high-carbon investments.”

World Bank President David Malpass told finance officials from the Group of 20 economies on Friday that the Bank would make record investments in climate change mitigation and adaptation for a second consecutive year in 2021.

“Inequality, poverty, and climate change will be the defining issues of our age,” Malpass told the officials. “It is time to think big and act big in finding solutions,”

He said it was also launching new reviews to integrate climate into all its country diagnostics and strategies, a step initiated before the letter from the European officials, said one of the sources.

(Reporting by Andrea Shalal in Washington and Kate Abnett in Brussels; Additional reporting by Valerie Volcovici in Washington; Editing by Matthew Lewis)

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