The 'Beast from the East' halts spring and impacts stock markets

The League's Matteo Salvini gives the thumbs up as he arrives to give a press conference on the preliminary election results in Italy. In an upset, the results showed the right-wing, anti-immigrant and euroskeptic League party of Salvini surpassing the long-time anchor of the center-right, the Forza Italia party of ex-Premier Silvio Berlusconi

FEW have escaped the effects of the “beast from the east” over the past week, with much of the UK and Ireland feeling the impact of the bitterly cold weather. It has proven highly disruptive and the effects seem set to reverberate for some days yet.

The market here dipped last week and it is now heading towards the 7000 mark – a level not seen for well over a year. We are only a week away from the Chancellor's spring statement (March 13) but indications are that it will be relatively brief and not include any spending announcements, rather a response to economic forecasts.

This does not bode well for providing the economy with direction. As ever the mists of uncertainty continue to swirl around the Brexit issue and it is hard to tell if any progress is really being made.

We've seen European politics dominate headlines over the past few days: in Germany we have finally seen a resolution to several months of uncertainty as the social democratic party voted to join a coalition with Angela Merkel's conservative bloc.

In Italy we have seen the election end in yet more uncertainty as no-one appears to have won an overall majority and it seems that it will take weeks or months to form a new government. This reflects the fact that Italian unemployment is still higher than pre-crisis levels, particularly amongst the young, despite four years of economic expansion, hence the discontent.

In the US we are once again waiting for payroll and wage data, due out on Friday. It was this data that sparked the period of intense market volatility a month ago, so we can expect these figures to be scrutinised closely for signs of average hourly earnings surprising on the upside. Meanwhile President Trump has once more hit the headlines as the threat of a trade war escalates with the possibility of a tax on EU-made cars if there is retaliation against the import tariffs on steel and aluminium.

With the spotlight to a large extent (although not exclusively) on politics, it is vital not to lose sight of the underlying economic picture. In some ways it does seem that some cracks are beginning to emerge. The threat of inflation, for example and thus the real possibility of interest rates beginning to creep up is now evident. The fall in corporate investment in the UK is of course inspired by Brexit uncertainty, but is beginning to have an impact. The eurozone is still forecast to see accelerating economic growth and on the whole optimism prevails in the US.

Some natural caution might be wise for investors. The message contains nothing new: diversification both in terms of geography and asset class will spread the risks, but not dispel them altogether. We continue to live in uncertain times, after a very positive year in 2017 for most markets, it seems inevitable that 2018 is shaping up to be a much rockier road.

:: Cathy Dixon is a director at the Belfast office of Cunningham Coates Stockbrokers, a trading name of Smith & Williamson Investment Management (SWIM). This article does not constitute a recommendation to buy or sell investments and the value of any shares may fall as well as rise. Investments carry risk and investors may not receive back the amount invested. The views expressed are those of the author and not necessarily of SWIM.

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