Global growth in Q1 was disappointing and survey data points towards a mediocre pace of growth in both the developed and emerging world.

In the US, decline in Q1 business investment was noticeable and represented a drag to activity. Fortunately, consumer demand and residential investment remained resilient, supported by a strong labour market. A pick up in business spending in the second half of the year should help activity to rebound. The key risk in the US is the market under-pricing the likelihood of a summer rate hike.

In Europe, we should expect a further slowdown in growth momentum. Underlying credit availability and labour markets are gradually improving, but a lot of progress is still required and the ECB will need to maintain asset purchase support for some time to come. Political uncertainty in the Eurozone will remain, notably from Spanish elections in June and an Italian constitutional reform referendum in October.

Recent polls show that the risk of a UK exit from the EU has risen. In the short-term, a referendum leave vote will trigger further volatility, especially for Stirling. In the event of BREXIT we expect UK growth to slow and investment to be adversely impacted.

Given these risks and the climate of sub-par growth, portfolios remain cautiously positioned. Equity allocations have been kept lower for some time, with a focus on defensive high quality corporates with resilient earnings. Fixed income exposure has been very selective with a preference towards financials and European corporates.

Thanks to our friends at London & Capital