There was supposed to be a landmark meeting between the US and North Korea at the Seoul Olympics. It should have been a chance to start a diplomatic reconciliation. Vice president Mike Pence was set to meet a delegation from North Korea at the South Korean version of the White House. But alas, it was not to be, as on the day of the meeting (which was scheduled for February 10th), the North Koreans backed out of the meeting, allegedly upset at Pence’s stern public speech on the country’s human rights record.
FINSUM: North Korea has done very well politically at these Olympics, mostly by “humanizing” themselves to the world. However, a real diplomatic engagement would have been a great step.
Here is a tough question to judge—are Treasury bonds yielding 3% good news or bad for the markets? Investors themselves haven’t made up their minds. At first the prospect of rising yields spooked investors, but they have recently grown much more tolerant. While at first investors were shy about rising rates ending the recovery, higher yields now seem to be interpreted as a sign that we have finally overcome worries about “secular stagnation” in the economy.
FINSUM: Our own view is that rates rising back to “normal” is a sign of the economy doing well, and thus is nothing to fear for equity investors.
Make no mistake about it, the Fed minutes from last month’s meeting today are a big risk. Economic data is a big driver of the market right now, and nothing could be more important than the Fed’s attitude on rates. If the minutes show a very hawkish Fed, then expect some volatility as investors interpret the odds for more and faster rate hikes. If the notes are dovish, expect gains. The minutes may include the Fed’s views on how the tax cut will affect the economy, which is another x-factor.
FINSUM: The market seems have grown slightly less worried about higher rates over the last couple of weeks, which we were readily expecting. But this could still be a risky minutes release.
Many advisors still dismiss green investment, and do so for a number of reasons. Some of these include the asset class as having lower returns, or just being a “niche” interest that is too small of a market. While the perception on returns has already been readily proven to be a fallacy, there is another area where green investment could help clients—in a downturn. Recent evidence from the US downturn showed that green funds tended to perform much better than the market overall during the selloff, suggesting that the underlying securities are more resistant to losses than their conventional share counterparts.
FINSUM: This is hardly a mountain of evidence, but it is certainly suggestive of a potential benefit for green shares.
Morgan Stanley has just come out with a big warning for investors. The bank says that the selloff over the last few weeks, which amounted to around 10% at its peak, was just a tiny start to what is to come. Describing the recent losses as the “Appetizer, not the main course”, Morgan Stanley says that big trouble will occur when growth weakens but inflation keeps moving ahead. “Strong global growth and a good first-quarter reporting season provided an important offset. We remain on watch for ‘tricky hand-off’ in the second quarter, as core inflation rises and activity indicators moderate”.
FINSUM: If growth starts to weaken, but inflation and rates are still rising, that is the catalyst for a big correction, or more likely, a prolonged bear market. But we are not there yet.