Visiting your local supermarket recently, have you noticed something odd? Apart from customers still wearing masks of course, and washing down their trolleys and baskets with disinfectant, and studiously ignoring each other as they do the dance of the seven veils in the aisles in an attempt to maintain a distance of 6ft 7 apart. But nothing else odd?
Precisely! There is nothing odd. Odd would be the shelves being empty, queues at the door, rationing of goods. Six months on from Brexit when the doomsayers were determined the UK economy would have ground to a halt even without Covid, the ability to access goods imported from the EU seems remarkably straight forward. And the same is true in reverse: as if by magic, or some sleight of hand, we still seem to be selling goods to the EU too.
Optimistic UK trade data
It is quite correct that there was a reduction in the efficiency with which goods moved to-and-fro between the UK and the Continent in the early weeks of 2021 as Customs, the ports authorities and businesses on both sides of the English Channel learned to cope with the additional post-Brexit paperwork and physical checking of goods. But all the fears of trunk roads outside Dover, Felixstowe, Hull and Immingham degenerating into paralysed, grid-locked lorry parks came to nought.
Trade with the EU certainly fell in January and February, partly because of the disruption, partly because of new Covid lockdowns being imposed both here and in the EU. But the most recent Office of National Statistics trade data shows that in April, the UK exported £26.6bn of goods worldwide, and imported £38.5bn; we are a net importer of £11.9bn. £12.9bn (48%) of our exports were to the EU, an improvement of £300m on the March figure; we imported £18.4bn in return, again an increase on March of £600m, thus in April we had a negative trade balance with the EU of £5.4bn. But our non-EU exports totalled £13.6bn (52%), with imports of £20.1bn, much the majority traded under WTO rules. What the data also reveals is that over the past 12 months, albeit disrupted by Covid, in nominal terms imports from the EU have remained essentially stable but consistently exceeding those from non-EU countries, but the last three months shows a steady increase in non-EU imported goods to the extent that they not only exceed the value of goods being imported from the EU, but the gap is widening.
One must be careful about extrapolating short term data, particularly with trade which can be affected by seasonality and exchange rates, and in the period under the spotlight when supply chains have been disrupted due to Covid. However, with the UK having now left the EU, and with the government pressing ahead with a raft of new trade agreements, the latest of which is with Australia (negotiated from scratch in a matter of months rather than years) to add to those already in place with Japan and India, alongside ongoing talks with the US, Boris is setting his sights more broadly eastwards: he has already opened negotiations for the UK to join the Trans Pacific Trade Partnership. It may well be that “Global Britain” becomes a reality rather than an electioneering strapline. So long as GDP continues to develop longer-term at a decent rate (2% would do nicely) and trade with both the EU and the rest of the world grows, there should be no embarrassment that the proportion conducted with the EU reduces as a percentage; after all, 85% of the global economy is found outside the EU, opportunities further afield abound notwithstanding the EU’s geographic proximity with us.
The Gordian Knot that is Northern Ireland
Against this backdrop, the irony is not lost on us that US Treasury Secretary Janet Yellen took it upon herself last weekend to tell a press conference after the G7 Finance Ministers’ meeting that yes, in the long-run inflationary policies might lead to higher interest rates, but we must not worry because “higher interest rates are good for society” (more accurately good news for depositors, less so for borrowers). Old habits clearly die hard: having recently strayed into Fed territory with her $1400 per adult “Stimmy Checks” totalling $390bn drawn on a Fed account but contributing directly to the monetary supply (control of which is the Fed’s job), it is no business of the Treasury Secretary to be offering opinions on the future trajectory or benefits of higher interest rates without the inference that she is deliberately and mischievously leading the witness. The Fed is independent of government; monetary policy is its responsibility while the Treasury looks after the fiscal side; Yellen better than anyone should understand the risks of parking the Treasury tanks on the Fed’s lawn.
Such complexities and conflicting messages are difficult waters to navigate safely. In fixed income the Merlin Portfolios largely invest in strategic bond funds where nimble, expert, specialist managers have the ability to access the full spectrum of instruments ranging from sovereign bonds, through high quality Investment Grade and down in to the riskier High Yield sector; they also invest in a variety of geographic areas. The Jupiter Merlin Portfolios are long-term investments; they are certainly not immune from market volatility, but they are expected to be less volatile over time, commensurate with the risk tolerance of each. With liquidity uppermost in our mind, we seek to invest in funds run by experienced managers with a blend of styles but who share our core philosophy of trying to capture good performance in buoyant markets while minimising as far as possible the risk of losses in more challenging conditions.
Investment risks from an EU trade war?
From an investment standpoint, there are risks but arguably they are fewer than half a decade ago. With the paperwork and checking of goods already in place between the EU and the UK, the only additional stress would be the payment and collection of levies, already standard procedure on the trade conducted with non-EU countries. Applying tariffs to nearly half our trade could have both a competitive and an inflationary effect on the economy, but the safety valve is available through the exchange rate. As new agreements are reached, the proportion of UK trade which bears no tariffs increases, so helping mitigate against the overall frictional costs of doing business.
In 2016 at the time of the Brexit Referendum, many thought we were taking a blind leap in to the unknown. While a sensible accommodation with the EU over Northern Ireland would be preferable, the bigger picture in 2021 is different: it is not that it is nothing to worry about so much as history suggests that the business community is ultimately pragmatic and adaptable and will deal with whatever it is presented with.
The Jupiter Merlin Portfolios are long-term investments; they are certainly not immune from market volatility, but they are expected to be less volatile over time, commensurate with the risk tolerance of each. With liquidity uppermost in our mind, we seek to invest in funds run by experienced managers with a blend of styles but who share our core philosophy of trying to capture good performance in buoyant markets while minimising as far as possible the risk of losses in more challenging conditions.
The value of active minds – independent thinking:
A key feature of Jupiter’s investment approach is that we eschew the adoption of a house view, instead preferring to allow our specialist fund managers to formulate their own opinions on their asset class. As a result, it should be noted that any views expressed – including on matters relating to environmental, social and governance considerations – are those of the author(s), and may differ from views held by other Jupiter investment professionals.
Fund specific risks
The NURS Key Investor Information Document, Supplementary Information Document and Scheme Particulars are available from Jupiter on request. The Jupiter Merlin Conservative Portfolio can invest more than 35% of its value in securities issued or guaranteed by an EEA state. The Jupiter Merlin Income, Jupiter Merlin Balanced and Jupiter Merlin Conservative Portfolios’ expenses are charged to capital, which can reduce the potential for capital growth.
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This document is for informational purposes only and is not investment advice. We recommend you discuss any investment decisions with a financial adviser, particularly if you are unsure whether an investment is suitable. Jupiter is unable to provide investment advice. Past performance is no guide to the future. Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. The views expressed are those of the authors at the time of writing are not necessarily those of Jupiter as a whole and may be subject to change. This is particularly true during periods of rapidly changing market circumstances. For definitions please see the glossary at jupiteram.com. Every effort is made to ensure the accuracy of any information provided but no assurances or warranties are given. Company examples are for illustrative purposes only and not a recommendation to buy or sell. Jupiter Unit Trust Managers Limited (JUTM) and Jupiter Asset Management Limited (JAM), registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ are authorised and regulated by the Financial Conduct Authority. No part of this document may be reproduced in any manner without the prior permission of JUTM or JAM. 27659