Chief Economist, Heteronomics

Phil Rush

Chief Economist

Heteronomics

Heteronomics represents a different kind of economics. We believe analysis should delve into the details of what is really going on, rather than using overly simplistic assumptions to quick-sell stories. Independence from myopic institutional pressures allows us to focus on the realities underlying your asset allocation decisions, without the conflicts of the old market structures. Heteronomics targets the themes driving UK asset prices, offering the benefits of depth, independence and ultimately price.

UK-centric macro research

Macroeconomics

<ul>
<li>Since my baseline forecast changed on 25 July to a no-deal Brexit, markets have priced in more of the risk, but that risk has also risen recently.</li>
<li>Plans to prorogue parliament for five weeks has left Europhile MPs with little time to pass legislation, or otherwise attempt to avoid a no-deal Brexit.</li>
<li>I now subjectively see the relative probabilities of a deal, no deal, and no Brexit at 35:55:10 (35:45:20 before), with significantly more Sterling downside likely.</li>
</ul>


Since my baseline forecast changed on 25 July to a no-deal Brexit, markets have priced in more of the risk, but that risk has also risen recently.
Plans to prorogue parliament for five weeks has left Europhile MPs with little time to pass legislation, or otherwise attempt to avoid a no-deal Brexit.
I now subjectively see the relative probabilities of a deal, no deal, and no Brexit at 35:55:10 (35:45:20 before), with significantly more Sterling downside likely.


<ul>
<li>The UK manufacturing PMI fell to 47.4 in Aug-19, broadly in line with the euro area, as weakness in the forward-looking aspects offset a less bleak output balance.</li>
<li>With energy utility output also down in August, IP probably declined again in August. The average level in 3Q19 looks to have stayed around mid-2017 levels.</li>
</ul>


The UK manufacturing PMI fell to 47.4 in Aug-19, broadly in line with the euro area, as weakness in the forward-looking aspects offset a less bleak output balance.
With energy utility output also down in August, IP probably declined again in August. The average level in 3Q19 looks to have stayed around mid-2017 levels.


UK: IP Contracting to 2017 Levels in Mid-19

<ul>
<li>UK inflation data for Jul-19 were distorted by computer games again, which caused the annual CPI rate to exceed expectations by 0.2pp at 2.1%. Weakness in airfares offset this in the RPI, which slowed to 2.8% (289.5) as forecast.</li>
<li>Computer games prices may hold firm in August, as in 2018, while payback from surprises in clothing and airfares will probably come later amid broader seasonals.</li>
<li>Further falls in the inflation rate towards an October trough remain likely, but the July surprise raises that trough to about 1.7% in my forecast. The outlook beyond that depends on Brexit, where I still expect the UK to leave without a deal.</li>
</ul>


UK inflation data for Jul-19 were distorted by computer games again, which caused the annual CPI rate to exceed expectations by 0.2pp at 2.1%. Weakness in airfares offset this in the RPI, which slowed to 2.8% (289.5) as forecast.
Computer games prices may hold firm in August, as in 2018, while payback from surprises in clothing and airfares will probably come later amid broader seasonals.
Further falls in the inflation rate towards an October trough remain likely, but the July surprise raises that trough to about 1.7% in my forecast. The outlook beyond that depends on Brexit, where I still expect the UK to leave without a deal.


UK Inflation: Shocking Computer and Brexit Games

<ul>
<li>Headline labour market data were mixed in Jul-19 as wages surged, supported by positive revision tendencies, but the unemployment rate increased to 3.9%.</li>
<li>Robust employment growth didn’t keep pace with the labour force amid falling vacancies. Some of this was a cohort sampling effect, but softer underlying trends around a no-deal Brexit means I expect further increases in the UR.</li>
</ul>


Headline labour market data were mixed in Jul-19 as wages surged, supported by positive revision tendencies, but the unemployment rate increased to 3.9%.
Robust employment growth didn’t keep pace with the labour force amid falling vacancies. Some of this was a cohort sampling effect, but softer underlying trends around a no-deal Brexit means I expect further increases in the UR.


UK: Wages Surge Before Vacancies Risk Crystalises

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

Heightened trade tensions have caused global equities to move from resistance to support in a matter of days. Additional consolidation - i.e., no breakdowns - on the broad global indexes (MSCI ACWI, ACWI ex-US, EAFE, and EM) remains the most likely scenario. At the same time, new cracks are beginning to show and as a result we believe global equities are vulnerable to a breakdown.  Along with a recap of important technical levels across major markets, we flip through several attractive Groups and stocks within Advertising, retail, restaurants, and travel, which offer attractive pullback opportunities.

Heightened trade tensions have caused global equities to move from resistance to support in a matter of days. Additional consolidation - i.e., no breakdowns - on the broad global indexes (MSCI ACWI, ACWI ex-US, EAFE, and EM) remains the most likely scenario. At the same time, new cracks are beginning to show and as a result we believe global equities are vulnerable to a breakdown.  Along with a recap of important technical levels across major markets, we flip through several attractive Groups and stocks within Advertising, retail, restaurants, and travel, which offer attractive pullback opportunities.

Global Equity Strategy: Another Test of Support

United Kingdom

SPDR FTSE UK All Share ETF is an open ended, UCITS IV compliant exchange traded fund, domiciled in Ireland. The fund's objective is to track the performance of FTSE All Share Index. The Fund invests in physical securities in the index.

SPDR FTSE UK All Share (FTAL LN)

UK Politics: Boris Versus Bremain

Since my baseline forecast changed on 25 July to a no-deal Brexit, markets have priced in more of the risk, but that risk has also risen...

Phil Rush

UK: IP Contracting to 2017 Levels in Mid-19

The UK manufacturing PMI fell to 47.4 in Aug-19, broadly in line with the euro area, as weakness in the forward-looking aspects offset a less...

Phil Rush

UK Inflation: Shocking Computer and Brexit Games

UK inflation data for Jul-19 were distorted by computer games again, which caused the annual CPI rate to exceed expectations by 0.2pp at 2.1%....

Phil Rush

UK: Wages Surge Before Vacancies Risk Crystalises

Headline labour market data were mixed in Jul-19 as wages surged, supported by positive revision tendencies, but the unemployment rate increased...

Phil Rush

Global Equity Strategy: Another Test of Support

Heightened trade tensions have caused global equities to move from resistance to support in a matter of days. Additional consolidation - i.e., no...

Vermilion Research