Historically, an inverted yield curve has been a useful indicator of recessions. However, quantitative easing may have distorted that signal. Therefore, we would not rely solely on the yield curve but also look at other indicators to track economic momentum.
While no deal is not the most likely scenario in our view, the risks are rising. The UK outlook is binary. A Brexit deal could see sterling bounce to 1.40 against the dollar, but no deal on 31 October could see a further slump to 1.10.
Emerging market equities are inherently volatile. But investors shouldn’t be deterred. If investors have a long time horizon, the emerging markets are expected to pay returns well in excess of developed market equities.
The coming week is a very big week for sterling investors since the Chancellor will present a new statement on fiscal policy and there are a series of votes in the House of Commons to break the Brexit impasse.