View from London: Rebalancing Portfolios Amid Uncertainty

09/27/2017 2:40 pm EST


Robert Savage

Partner & CEO, CCTrack Solutions

Gains in Russell 2000 last week and the sector rotation of shares suggest we are all playing in a different world in 4Q, writes Bob Savage, CEO of Track Research in his Sunday commentary.

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Politics continue to matter to markets and last weekend’s results from New Zealand and Germany are likely central to the mood for markets. 

The rating cut for the UK from Moody’s Friday and the UK May government response will also be watched. As for the geopolitical fears, the war of words between Trump and Kim continued over the weekend with threats of a hydrogen bomb test over the Pacific, the U.S. Air Force flying another mission over North Korea, more earthquakes were seen in Mexico, and one in North Korea – causing some to question whether that was another nuclear test – while the Iraqi Kurds voted for independence rocking Iran, Iraq and Turkey relations.


For Japan, Abe has an uphill climb as Kyodo News Service reports 2/3 oppose a snap election. 

The weather also continues to matter as Hurricane Maria hit Puerto Rico and threatens a dam break.

The level of uncertainty remains high regarding politics and that alone leaves many wondering if this week is going to require special patience as month-end/quarter end flows will dominate in a world of passive investing programs likely buying bonds, selling stocks and rebalancing portfolios for the final run to 2018.

The ability for markets to withstand surprises has been notable since 2016 Brexit and many are willing to bet that the “nattering nabobs of negativism” will fail even further in the months ahead.

The counter-trend up in the USD that started last week will be a central focus in the week as the drivers for forex play beyond rates and growth into political compromise and hopes of a U.S. tax deal by year-end – all of which contrasts with the likely heavy lifting for coalition building elsewhere.

Whether the USD remains weak or not will also set the tone for 4Q growth and profit outlooks as many turned views on a December FOMC rate hike and began to take 3 more hikes in 2018 seriously as well.

The relationship of the USD to stocks and bonds may be further enhanced by the myriad of key data in the week ahead – with PCE inflation a key focus. Gains in Russell 2000 last week and the sector rotation of shares suggest we are all playing in a different world in 4Q.

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