Politics drowned out important economic news, with the Pan-European electorate taking the opportunity to deliver a message of disapproval and discontent to Europe’s political elite over the handling of European affairs over the past years. I sincerely hope that this will not drive the EU back into national parochialism, but rather give the political leadership the wake-up call they need to utilise the European potential for the greater good of its peoples rather than continue to bicker and drive apart.
Enough of politics - more important from my perspective were the latest data releases in the UK and China and the calming of bond markets. In the UK news of resurging business investment brought one of the signals the Tatton investment team had been waiting for since the end of last year. To us it is confirmation that this economic upturn is more broadly based than the much talked about housing and debt financed consumer demand. UK companies finally investing their cash piles to the tune of £33bn over the past year and thereby reaching pre-recession levels is a very encouraging sign that this expansion has further to go. Business investment is a very important component in the creation of GDP and UK companies have both the money and are long overdue for investment into modern productive capital. There is still room for further improvement given investment levels weren’t at particularly satisfactory levels back in 2007/2008, but the trend is there and has encouraging upward momentum.
China’s forward looking industrial production data improved markedly last week and confirms our view that China is less of a concern than many observers deduced from the frictions in its financial system and overheating housing markets.
Last but not least bond markets appeared to come around to the central banks’ policy setters way of thinking that interest rates and in their wake longer term yields will rise far more gradually than anticipated, because the global economy is likewise only quite gradually expanding during this economic cycle.
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