Key points from Iggo's analysis include:
1. UK market outlook:
- The clear election result is expected to boost UK equity markets and lead to a rally in the gilt market.
- Iggo predicts lower political risk premiums and potential Bank of England interest rate cuts.
- He cites historical precedent, noting that after Labour's 1997 victory, the FTSE 100 rose 35% and gilt yields fell 160 basis points within a year.
2. Global economic conditions:
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- Iggo believes the US economy may achieve a "soft landing," avoiding recession.
- He suggests interest rates may have peaked but could remain at current levels for an extended period.
3. Geopolitical risks:
- While acknowledging that geopolitical events can disrupt markets, Iggo advises investors that markets often overreact initially, creating buying opportunities.
- He identifies a potential conflict between the West and an alliance of China, Russia, India, and others as a significant tail risk.
4. US election impact:
- Iggo notes potential "Trump wins" trades, which could be bearish for Treasuries, bullish for the dollar, and may work against the technology sector.
- However, he states these factors are not currently impacting market pricing.
5. Near-term outlook:
- Iggo expects July to be historically favorable for bond and equity returns.
- He cautions that the latter half of 2024 might be less calm for markets.
Iggo concludes by advising investors to "trade the economics not the politics" in the short term, while remaining aware of potential longer-term geopolitical risks.
