The Vertem Asset Management Ryder Cup

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This year’s Ryder Cup saw the USA win the cup for only the second time this century; you have to keep people interested of course. In reality team USA were deserved winners this time around, and Europe were without a miracle. But we’re going to give Europe another chance, what if both sides of the pond were to go head to head not on the fairways but on the trading floors and central bank hallways? Forget the Miracle at Medinah. This isn’t Garcia v Mickelson, it’s the ECB v the Fed, Yellen v Draghi…

Match 1: Politics

Well if there’s ever been a dogged match not built on quality it’s certainly this. In recent times both sides have been challenging for the biggest gates at their own political pantomimes. The USA has the captain’s wildcard pick in Trump, about to potentially bunker the world’s largest economy. This is the equivalent of Happy Gilmore turning up. trump-golfingIn the midst of one of the most unique US election campaigns you’ve also got the UK’s political fallout from the Brexit and Labour trying to get rid of Corbyn like a persistent wasp at a BBQ. Newly elected Theresa May has finally set a date for Article 50 and all of a sudden the Brexit becomes tangible. Europe also has to deal with the upcoming constitutional reform referendum in December for Italy that could pose a significant backlash if the vote goes against the grain and Spain’s political saga is like watching Sergio Garcia putt… turbulent, conflicting, unhappy all spring to mind. This match therefore shares a point with no real winner and unfortunately in this case there are pictures on scorecards.

Match 2: Currency

After a solid front half showing from the pound, it was maybe one too many in the halfway house. Of course we’re alluding to the referendum that caused the pound to plummet against both the dollar and euro. Yes, it can be said a weaker pound isn’t all doom and carney-sadgloom, match 2 almost a sacrificial lamb for match 3. Nevertheless the dollar moving from around $1.48 to $1.28 is enough to take it.

Match 3: Equity Markets

The match has been severely hampered by those preceding it. Trying to trundle along sticking to its own game wayward shots from other match ups have changed the outcome of the match. After a gloomy start both sides managed to steady themselves despite a plethora of uncertainties. YTD the S&P 500 is c.6% higher, with the Dow Jones c.4% higher. The day before the EU referendum the FTSE 100 sat at a similar level with modest YTD gains of 2% but now the main London index sits around 14% higher, with investors chasing dollar earners residing on the index. The FTSE 250 denominated more by sterling earners has staged a more modest comeback since the vote and YTD sits c.6% higher also. Other major indices such as the DAX and CAC 40 have held their own despite not having the rub of the greens for some time now. This enables Europe to sneak a 2up victory drawing level.

Match 4: Employment 

The US unemployment rate has shown a long term trend of regression, with the rate currently at 5.1%. The UK has mirrored a similar trend and for the last 5 years has steadily improved, now at 4.9%. The US jobs market has been one of the main driving forobama-with-a-coconutces behind the Fed’s first rate rise. Euro area unemployment has displayed similar trends, but with Spanish unemployment at around 20% and Italian unemployment over 10% it is a few European laggards that just let the side down on closing holes. If it hadn’t been for the odd bogey, America would’ve been denied the point.

Match 5: Yellen v Draghi

Here we have the figurative heavyweight clash. Fed Chair Janet Yellen taking on the ECB President,  Mario Draghi. Yellen so far has delivered the much anticipated first rate hike in the US. Unemployment is down but inflation currently runs below the 2% target. Economic forecasts are also solid. European household spend isn’t as strong and inflation in the Eurozone is weak again calling for more action from the ECB. Draghi’s steps such as negative deposit rates and a supercharged QE programme have been hit and miss throughout the differing socio-economic targets. The Eurozone of course is a different beast to the US. So what else can we look at? Well Yellen is the first woman to lead any central bank in the world and has been voted the most influential woman on the planet. Her husband makes for a fierce fourball partnership being a Nobel Prize winner for Economics. But Mario Draghi isn’t called super Mario for nothing. This one just goes to the US, but both sides leave the 18th to return straight to the practice area.

Match 6: GDP

Eurozone GDP last year saw growth of 1.7%, with the UK growing at a rate year on year above 2% since 2013, unsurprisingly expected to cool this year. The US has also displayed healthy GDP growth of over 2% for the last 2 years. However the last US GDP update fell well short of estimates of 2.6% to read 1.2%. Q1 was also revised down from 1.1% to 0.8%. The IMF cut US growth expectations from 2.4% to 2.2% and then further to 1.6% this year. In the UK GDP forecasts have fallen of course but the latest IMF estimate for 2016 nudgmario-rain-qeed up slightly from the resilience so far seen in a post-Brexit world, growth this year now expected to be 1.8% with next year looking like 1.1%. The IMF now expects Eurozone growth of 1.7% thanks to Super Mario’s QE, and with that Europe take the point.

 

To conclude, the US just like the real Ryder Cup takes the victory. Overall neither economy is boasting superior strength or exactly in the form of its life. Watching both respective sides navigate themselves through the current economic climate is like watching the leader going round Amen Corner, there’s a lot of uncertainty, pressure and risk but with good ‘course’ management lies plenty of reward. We’ll leave with an apt quote for both the greens and the screens;

‘This is a game of misses. The guy who misses the best is going to win.’’

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