July 20, 2016
Financial markets started the second quarter positively as expectations for rising interest rates were put on the backburner by the U.S. Federal Reserve. Stock markets continued their recovery after the first quarter’s weakness. The Brexit vote, however, derailed this recovery but, so far, it has proven to be short-lived, influenced by the expectation that central banks will ramp up their support.
Our underlying theme continues to be an economic environment where GDP growth is modest. Short term, we believe the Brexit outcome is a political crisis rather than a financial one. Long term, we recognize that there is an anti-globalization element to the vote which is shared by voters in many developed economies, including the United States. This is a development that bears watching in the years to come as there will be winners and losers from this seeming reversal in the globalization trend.