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While markets in the US closed on Monday for Martin Luther King Jr day, the rest of the world was preparing for circus Trumpageddon to roll into town. In the UK, hints of a ‘hard’ Brexit last week had an impact on sterling, which slid to its weakest level against the dollar in almost 32 years, if you exclude the October ‘flash crash’.

Fast forward to Wednesday and Theresa May’s outline for how we would Brexit, which includes a plan to leave the single market, has been a boost for sterling, pushing it to ~2.5% against the dollar. Further lift comes from Bank of England Governor Mark Carney, who now believes that the EU has more to lose from a hard Brexit than the UK and has stated; the bank is likely to revise its economic forecast higher next month.

How the forecasters got it all wrong.

Given the current market conditions and sterling strength, it may be time to look at companies, like AB Dynamics, who compete on value instead of price.

In Germany, news of the 1.9% economic expansion level for 2016 has boded well for markets, buoyed further by a budget surplus and a rise in exports of 2.5% for November vs November 2015. The good news keeps rolling as the ZEW Index advances to a seven-month high. Looks like Trump’s threat to increase tax on imported cars has done little to dent the outlook for the likes of BMW, VW and Daimler AG (owner of Mercedes Benz).

In the US, things continue to look rosy for the markets. Many, including Reuters, are expecting US companies to report their strongest profit growth in two years, which may finally start to explain why Wall Street is rallying to record-breaking levels. This has also been partially fuelled by speculation of a Trump-led investing spree, but investors should be wary: any potential growth will take longer than expected to realise. Trump, albeit a one-man marketing machine, is not able to bulldoze over congress in the same fashion he did the 16 other republican candidates that stood in his way to the republican nomination.

Travelling to more exotic locals, Brazilian investors are confident that the economy will shrug off the recent recession and return to growth. The government’s monetary reforms are slowly starting to pay off and companies are beginning to pop up on the capital markets to raise growth finance and pay off debt. This activity will be further fuelled by potential interest rate cuts, which should make these equity offers more appealing. However, while IPOs and placings will accelerate, M&A looks set to remain at lower levels.

That concludes the wrap up for this week. We’ll be back next week with more food for thought. As always, feel free to leave a comment with what you would like us to look into.


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