Last week, the leasehold and reform bill became law in the UK. This is not the end of leasehold reform. It is not even the beginning of the end. But it is, perhaps, the end of the beginning. This passage of the bill happened against the odds. It was crawling through parliament and when Rishi Sunak, somewhat unexpectedly, announced the general election on July the 4th, campaigners for leasehold reform—a group which yours truly have been loosely working with for a while—thought the bill would be lost. If you want to understand what happens to outstanding bills in the brief final sessions of parliament before prorogation, you need to read to up on something called wash-up. Put simply, it’s the period where outstanding bills are either rammed through as is, or kicked into the abyss never to be seen again. It is a borderline insane policy process, which breaks all the rules of legislation, simply to get the order book emptied as quickly as possible. The leasehold and reform bill made it, just, though without key additions such as a cap on ground rent or a ban on forfeiture. This is bitterly disappointing, especially in case of the former given that an agreement to cap ground rents to £250 pa was virtually agreed by the department and HMT, or so we’re told. But I guess we live to fight another day rather than having to start over.
Read MoreI’ve recently come back from a week on Ibiza—the smaller and cooler of the main Spanish Mediterranean isles—enjoying what has to be one of the most fantastic climates on earth. I come back to the realisation that I could have been more spendthrift in the pool bar despite its grotesquely overpriced drinks and snacks. Stocks are flying, credit spreads are narrow and volatility has plunged to a new low for the year. My relatively defensive portfolio is currently tracking a punchy 3.8% monthly gain for May, just shy of the 4.4% rise in the S&P 500. Long may it continue. I will have more to say about this in due course, but in the first instance, my recent work suggests that this rally has one strong tailwind on its side; the cyclical picture in the global economy has improved. My measures of global cyclical activity hit a new high at the end of Q1, and into Q2, from a trough last year, and cyclical equity returns are now re-accelerating, after softening a touch at the start of the year.
Read MoreI use three indicators in my work and analysis on the blog to describe the global business cycle; a weighted average of growth in global industrial production and trade, compiled by CPB, the global composite PMI, and a diffusion index of OECD’s leading indicators. Strictly speaking, the CPB data in this context are a coincident indicator, while the PMI and OECD LEIs are short-leading indicators. What’s the difference? At the moment the CPB data, updated through February, provide a guide of what happened at the start of 2024 and perhaps an early read on the Q1 GDP numbers, which have just started to trickle out. By contrast, the PMI and OECD LEIs are supposed to offer an early indication of what will happen in Q2. The distinctive lines between these definitions are fuzzy, so I tend to see these three as separate gauges of where global economic activity—with a weight towards developed markets—is right now.
But how do these indicators relate to the equity market? Let’s try to find out.
Read MoreI recently said that markets were cruising for a bruising. For now, they’re just cruising, mirroring the path set by Corporal Ferro as she guides her drop ship to a perfect landing on LV-426 in James Cameron’s Aliens.
There is still little stopping risk assets, short vol is paying steady premiums for those picking up dimes in front of the proverbial steamroller, and risk-free instruments still offer 4-to-5% for anyone who feels like temporarily getting off the train. In other words, it’s very pleasant indeed for investors. From the perspective of the macro data, that’s easy to explain. Markets are still being fed information that the (global) economy is doing ok, inflation is falling and while interest rates are set to stay high, they’re also about to come down, by 50-to-100bp. Does this story still check out? Just about.
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