06 Aug Finance Sector Analysis for 2018
Interview conduction on Thursday 19th April 2018
They discussed a wide range of topics including Brexit, the US mid-terms, the European power shift, blockchain and the impact of big business.
“I’ve had many conversations with Paul over the years, in various roles, that have helped give insights and perspective on world events”
2017 saw a number of significant European elections including the Dutch and French in early 2017. Paul said, “The markets essentially reflect human psychology, despite all the applied algorithms. The perceived rise of EU Nationalism had made the markets nervous.
When Macron was victorious and the Dutch election result was more neutral than expected a ‘relief rally’ for the markets occurred and a mini-boom for the Euro followed.”
In September 2017 the German election saw a no majority lead and no parliament for six months. Paul envisages Macron will take the EU ‘baton’ from Merkel whose power is waning.
“Interestingly the Italian elections have been very quiet in the mainstream media as a result of the unrest in Catalonia, the Euro Zone wants a time of stability and the impact of the French and German elections combined with Brexit essentially means they don’t want any more dramas unfolding in Italy.”
Brexit – Capital, the Coward
Brexit negotiations are another major influence on the markets. Paul was clear on this
“Capital is a coward and it hates instability.
Its unlikely to be a great deal but it won’t be bad, if the deal was too good other EU members might see exiting the EU as a positive. The UK is in a powerful trade position and a major market for Euro Zone countries, they want a trade deal and trade will continue to happen regardless of Brexit, but it’s going to be painful, probably for 5 years, but the long-term prospects are very encouraging and we should be optimistic about it.
So in reality, the deal will be ‘good enough.’
UK Government culture needs to change, we’ve got a lot of euro-crates who need to think differently and rise to the challenge. They need to grab the bull by the horns and make change happen rather than following with EU rule-book.”
Will Theresa May see her term through?
“May ran the worst election possible; only just scraping through and she is still struggling to recover.
She should see the term through, but she is vulnerable to external factors which could easily topple her. Sterling has been very stable under May and the FTSE has had a reasonable run. We are likely to see somewhere between two to six interest rate rises of ¼% each during the remainder of May’s term.
The markets overall have had a good run for the last nine years, a correction is possibly due but for the rest of the year we will most probably see the markets moving sideways.”
The rise of Blockchain and Cryptocurrencies
“We will see a ‘dotcom bubble’ style situation where the market will be flooded with lots of different currencies until the strongest emerge and dominate the landscape. Blockchain technology has largely proven itself but adoption is very low and in its infancy, it will take several years for mass adoption and standardisation and this is largely linked to the use of crypto-currencies.
Millennials will be the main driving force for cryptocurrency adoption and the natural progression of infrastructure, enabling consumers to pay for goods and services using them. However, the current processes and infrastructure are immature and inefficient. The quick money on crypto has largely already been made, we saw the rise of Bitcoin and the crash of all Cryptocurrencies at the start of 2018 but they are on the rising again, maybe in part due to being declared Sharia Law compliant.”
US stability – Trump and Mid-terms
“Despite a dip at the start of 2018 the NASDAQ and S&P seem to have stabilised. Trump seems to be viewed as less of a threat than originally thought during his inauguration, where many predicted he wouldn’t last a year. Trump seems to have had a positive impact on the markets, however, the US Mid Terms are just around the corner.
This is going to go one of two ways.
Either Trump will be seen as less of a threat and people’s scepticism will diminish resulting in him being seen in an increasingly positive light and gaining greater national support. Or certainly less negativity towards him as people see in the second half.
Or exactly the opposite will happen, possibly leading to significant civil unrest which would have a negative impact on the markets and the US position as people want to ensure he doesn’t secure a second term
The FBI investigation into potential Russian involvement in the US election may see James Comey being investigated and a shake-up at the FBI. The focus on Trump may shift and the spotlight shone on wider US politics and policies.
It will be interesting to see what happens with the Mexican election as this may result in a shift in their relationship with the US.”
2018 – the year of Korean resolve
“Korea is always a subject of much discussion. Paul’s viewpoint is that increased negotiations between the US, North Korea and South Korea could be the catalyst to North Korea becoming denuclearized. He feels the situation has reached its peak and will subside with significant positive steps.”
Since this interview was conducted, we’ve already seen positive steps towards denuclearisation and improved North/South Korean relationships.
ISIS, Syria & Russia
“ISIS’s power is largely diminished and if Trump re-negotiates the nuclear deal with Iran it may well stop further funding to ISIS and therefore further global threats, in reality, ISIS haven’t had the impact the media have given them credit for.
Russia will keep a presence in Syria and will likely fight to keep Al Assad in power as their ‘puppet.’
They have natural resource interests in the area as gas reserves have significant financial implications for Russian supply into Europe which they will absolutely look to protect
The price of oil dropped to $30 which looked like it would stay at that price and wouldn’t reach $50 for the foreseeable future, Putin himself said so. Then it jumped to $70! However, oil is on the long-term decline as nations move away from it towards alternatives.”
Impact of big business failing
He feels that Carillion and other major contractors are able to keep a monopoly of government contracts largely by being able to undercut competitors.
“This is enabled by the government procurement policy of Most Economically Advantageous Tender (MEAT) which creates a ‘race to the bottom.’ Carillion is a casualty of that policy.
With big businesses vulnerable to failure comes the threat of pension deficits.” Paul believes this is a future trend to watch. If he’s right it will have a lasting impact on generations to come.
Certain about uncertainty
Businesses need to continue to improve operational efficiencies, business process management and their ability to be more agile. The pace of change and technological enhancement is continuing to increase and businesses need to work with infrastructure providers that get this and get them, ensuring they can adapt to market changes.
About Paul Wallace
Paul was an RAF Fighter Controller who had a follow-up career working in the City and now as a currencies trader and coach. Paul is widely respected for his direct opinions that often go against the grain of market analysts, however, he has correctly predicated and traded against many market shifts.