Morning Call: pick of the papers

The ten must-read comment pieces from this morning's papers.

1. After this shadow cabinet reshuffle, we know what's in Ed Miliband's mind (Guardian)

The Labour leader has got what he wanted, says Polly Toynbee. No lurch to the left or right, but a team unafraid of the challenges ahead.

2. Getting giddy over shale won’t do much to keep the lights on (Daily Telegraph)

Yes, fracking has vast potential - but Britain's looming energy crunch is rather more pressing, says Benedict Brogan. 

3. America cannot live so carelessly forever (Financial Times)

Playing Russian roulette is never advisable, writes Gideon Rachman. Congress may find a bullet in the chamber this time.

4. The prejudice, fear and ignorance around Alan Sugar’s – and others’ – views on Chinese labour (Independent)

So the Chinese work harder than the rest of us,  right? Wrong, says Ben Chu. 

5. Ignore the press barons: a royal charter is not 'state regulation' (Guardian)

All being well, parliament's royal charter will get the final nod from the privy council this week, writes Hugh Grant. All those who believe in a free - and fair - press should welcome it.

6. A shuffled pack doesn’t make a winning hand (Times)

Cameron can’t rely on promoting token women and northerners to win over wavering voters, writes Rachel Sylvester. 

7. UK eurosceptics are not ready for a fight (Financial Times)

Haggling over process is a good way of not having to think about substance, says Janan Ganesh.

8. At last, Clegg is making the case for Britain in the EU - just the corrective needed to Tory Europhobia (Independent)

But it will be interesting to see where the Deputy PM's speech leaves Labour, says Donald Macintyre.

9. Does Britain need an FBI? (Daily Telegraph)

The launch of the National Crime Agency is more than a rebrand: it has significant new powers over local forces, writes Philip Johnston. 

10. The problem with education? Children aren't feral enough (Guardian)

The 10-year-old Londoners I took to Wales were proof that a week in the countryside is worth three months in a classroom, writes George Monbiot. 

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Promoted by Janus Henderson

Europe: as the politics subside

How long can a resurgence of investor interest in Europe last?

Might Europe be the place to be?

I think European equities tick a lot of the right boxes right now. Economies are recovering – indeed the first quarter of 2017 saw Europe once more grow faster than the US, having outpaced the world’s largest economy in 2016. Valuations are not excessive, either relative to the region’s history or the US equity market. Like almost anything, I believe European equities also look compelling relative to bonds. The final part of the jigsaw puzzle might have been earnings growth, but here too Europe is, at last, getting close to achieving a gold star.

Most of this has been known for quite a few months now and is part of the explanation for the better performance of Europe year to date. Even the euro has strengthened against the US dollar, from about $1.05 at the start of 2017 to $1.12 at the time of writing. Politics looks more settled, after the surprises of the Brexit vote last year in the UK and the election of Donald Trump in the US Presidential election. Perhaps a comment I made at the beginning of 2017, that “by the end of 2017 the UK and the US might look to have been the exceptions” when it comes to successful populist votes, seems more prescient.

Now that the political backdrop is perhaps more settled, with the UK’s potentially tragic Brexit decision an exception, how long can a resurgence of interest in Europe last? One threat is the gradual move towards ‘tapering’ by the European Central Bank (ECB) of its unprecedented quantitative easing program, and the support this provides economies by injecting cash to drive down the cost of borrowing and increase consumer and business spending. But it is already clear that this will be a very slow process. The economic recovery in Europe remains quite slow and inflation, outside the UK, is well below the ECB’s target of ‘below or close to’ 2%. At the same time, the damaging effect of negative interest rates needs to be avoided.

 

What could derail this market?

The one exception to what looks to be a relatively rosy scenario, in my view, remains the UK. The Brexit ball is rolling onwards, following the invocation of the now infamous Article 50, but the calling of a General Election was another distraction. The UK is still no closer to knowing what sort of Brexit is desirable, or more likely, economically feasible. Once the reality of debt, demographics and a weak currency become clear, I suspect that the UK market will continue to struggle against other European peers.

Elsewhere in Europe, economies look well set, and I suspect that more capital spending and investment are likely to be incentivised with tax cuts in Europe, again outside the UK. In this scenario, those capital investment-related names such as Siemens, Legrand and Atlas Copco should continue to do well. Luxury names, and auto makers, many of which have rallied hard so far in 2017, are likely to struggle due to subdued consumer demand. Financials have also seen mixed performance so far, with insurance underperforming banks. This seems an anomaly given the paramount importance of long-term savings to cater for retirement.

It would be entirely healthy for European markets to drift through what will hopefully be a quiet summer, without shocks such as Brexit to contend with. I think all seems well set though for European markets to trade higher than current levels by the end of 2017.

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