So, why is the pound not
rallying? Well, the pound has not really moved that much recently, confined to
a narrow trading range. However, traders are mindful that the Brexit question
is still open and the likelihood of other options (apart from no deal and May’s
deal) have increased. These options include a potential 2nd
referendum or a gen. election. Either will increase uncertainty and it is a
well-known adage that markets dislike uncertainty
Global equity markets are down half a percent this week whilst bond yields remain roughly where they were 7 days ago.
As mentioned over the past few months, it appears that markets are being driven by a combination of: a potential trade deal between the US and China, the potential for Chinese stimulus to translate into economic growth and the potential of a market friendly outcome on Brexit. The market may have priced a lot of this in and the risks now lie to a no deal outcome on Brexit and trade, and a lack of Chinese growth.
There has been little change, week on week, regarding the US/China trade deal but it is still likely to be done. Trump, a self-proclaimed master negotiator, needs to secure a trade deal that he can sell as being good for the American people, before the presidential election next year. By doing the deal with an 18 months to 12 months left before the election, Trump can reassure voters the product of his brilliance will only be realised after he has been re-elected. Therefore, it is in his interests to get a trade deal through. For their part, the Chinese government will want to have as much negotiating leverage as possible. This means they need to convince the US that they can handle the repercussions of turning down a deal. Therefore, the Chinese administration is incentivised to do as much as possible to increase economic growth and this is starting to appear in the numbers.
Returning to the discussion on tech companies listing on public markets, Uber filled for its IPO yesterday, seeking a valuation of $120bn, which is $100bn more than Lyft is valued at. Lyft’s share price is down 13% this week, perhaps suggesting that the supply of new tech stocks is greater than the demand for them. Many of the tech companies coming to market still burn through cash at notorious rates. This may test investors’ resolve to own these companies during a sell-off like the one experienced in Q4 last year. During the Q4 sell-off, newly listed tech companies Snap, Sonos, Spotify, Dropbox and Survey Monkey all underperformed the Nasdaq and the Russell 2000 (US small cap index).
The fact that Lyft, Uber, Pinterest and other so called ‘unicorns’ have chosen now to list on public markets could be a contrary indicator, marking a cycle high as the flood of tech companies coming to markets did in 1999.