Historic London-based investment bank, Schroders, has thrown in the towel. Let Lloyds of London flee to Brussels. Schroders, meanwhile, is thinking that populism, in rich countries at least, might not be so bad after all. Whether we are in the eye of the hurricane remains to be seen.
Keith Wade, chief economist and strategist at the firm, says markets have been laser focused on Western politics. The two biggest disruptors to the status quo were of course “Brexit” and The Donald. Yet, even with these trends firmly in place, markets have not tanked. London is not burning. Washington is…well…still swampy. And merchant marine vessels are still traversing the seven seas with iron ore and automobiles and crates chock full of semiconductors.
Wall Street is doing just fine, and even got toppy. It’s time for a correction. But populism won’t be to blame.
Wade notes that nationalist politics have not altered the fact that global trade has picked up. The Baltics Dry Index, a measure of trade flows, is up 32.9% this year and 91% in the last 12 months. “That’s what has obviously been helping markets,” Wade says. “The U.K. benefited from a fall in the pound and a cut in interest rates after the Brexit vote and that’s been supportive.”
A pro-growth agenda in the U.S. has boosted sentiment. There are new doubts about the so-called reflation trade that are adding to the selling pressures in the market.
Wade doesn’t think populist leader Marine Le Pen wins France, but “should she win and holds a referendum on leaving the E.U., it would mean France leaves the euro and that would have a big impact.”
There’s a bright side.
“All of this populism could be good if it pushes Europe towards a more pro growth agenda,” says Wade.