The CIO office’s view of the week ahead.

One-time Remain advocate, Jo Johnson (brother of leading Leave campaigner Boris), resigned from his position as minister of transport in protest at Theresa May’s handling of Brexit negotiations. Johnson’s departure signals an increased risk of no deal or a second referendum in our view, with a high level of uncertainty around the outcome persisting. Sterling’s subsequent fall reinforces our play on GBP volatility, which we maintain as the best strategy for the currency in the current environment. We will continue to monitor developments as negotiators on both sides race to reach an agreement by year-end.

Pollsters finally got it right in the US: the midterm election results were largely as predicted with the Democrats regaining control of the House while the Republicans strengthened their majority in the Senate. Whether gridlock in Congress undermines Goldilocks in markets remains to be seen. But last week, the USD strengthened and the S&P 500 did far better than all other markets last week. Over the coming days, we will watch to see the degree to which Trump attempts to interfere with Mueller’s probe into Russian meddling in the 2016 presidential elections, following attorney-general Jeff Sessions’ dismissal last week.

Sunday’s Singles Day shopping event in China broke new e-commerce sales records. China’s version of Black Friday provides insight into consumer sentiment, particularly given the current backdrop of trade tensions with the US and negative Chinese equity returns this year. More broadly, given that weakening data in Asia has driven this year’s correction in Asia ex-Japan equities, we continue to prefer developed to emerging markets.

César Pérez Ruiz, Head of Investments & CIO

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