ECONOMIC DATA IMPROVES PUTIN'S 'WALL OF WORRY'

The Easter Week 2014 kept a balance between encouragement and disappointment. Encouragement came from the economic and company results, disappointment from global politics. Economic indicators from China to the US showed a pick-up of economic activity and corporate earnings after a disruptive winter in the Northern hemisphere. The once again increasing tensions between Ukraine and Russia ensured that investors didn't forget their concerns and worries about everything that can at any point go wrong and 'spoil the broth'.

Hopes that the Geneva Accord would bring a truce to the crisis were quickly crushed and the increasingly hostile environment does not bode well for a peaceful resolution of this stand-off. Judging by the muted market reaction, there appears to be an expectation that this is all a big game of chicken, in which Russia's president Putin is trying to bully the weaker Ukraine into concessions towards more influence and control by Russia of the heavily industrialised Eastern Ukraine. It isn't entirely surprising that this coincides with a notable economic slump in Russia's economy and a sizeable amount of nationalistic distraction is there-fore quite possibly intended. We continue to follow the developments around Ukraine closely, because a sizeable geopolitical upset has become pretty much the only event which could currently derail this recovery.

The continued rumbles around the Ukraine tensions are unhelpful, but need to be put in context, of a relative minority causing trouble in a post revolution power void, rather than a majority desperately seeking to break away and join Russia as was the case in the Crimea.
During our monthly Tatton investment committee meeting we deliberated at length on the developments of the first quarter and whether our central scenario of a pick-up of the economic recovery momentum has changed. The answer was a resounding 'no change' and so we have kept our portfolio allocations unchanged with only a few fund changes which have become necessary and opportune. The one area where we might introduce changes in the coming months is fixed income. With the risk of a severe deterioration of bond values dissipating as the yield and (low) inflation environment stabilise we are looking to reposition the Tatton portfolios to reintroduce their gilt 'stabilisers' as soon as is this makes good investment sense.

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