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Global Markets to 09 December 2019

 

Highlights

  • Financial markets continue to be buffeted by contradictory reports from Washington and Beijing about trade talks and whether a deal will be signed this month.
  • President Trump visits London ahead of the NATO meeting which ends in apparent disunity.
  • In the UK, the main political party leaders continue to push their general election pledges in the run-up to next Thursday’s vote.
  • In the US, robust jobs data pushes Wall Street and the dollar higher, while expectation of a Conservative general election victory in the UK gives the pound and the FTSE 250 Index an extra boost.
  • The monthly Purchasing Managers’ Index has given us a mixed global picture with some positive and disappointing readings.
  • While the global economy has shown signs of weakness in recent months, 2020 should see a significant recovery which could lead to further gains in global stock markets.

Global Market Summary

The week has once again been very busy for the financial markets: differing reports have emerged from Washington and Beijing over whether an actual trade deal agreement will be signed by the US and China before the end of this month.

Initially, positive reports at the start of the week raised market and analysts’ hopes that a phase-one deal was imminent – notwithstanding difficulties associated with intellectual properties, such as technology.

However, speaking at an event in the US, President Trump warned China that he would raise tariffs substantially if the two countries could not strike a deal very soon, while China – open to signing a trade agreement – is pushing for a complete tariff roll-back. President Trump has also indicated that he would reinstate tariffs on steel and aluminium from Argentina and Brazil, criticising them for weakening their currencies to the detriment of US farmers.

He also urged the US Federal Reserve Bank to further loosen monetary policy. It is unlikely to do so this month, however, given the strong jobs data that was announced at the end of the week.

Economic stresses caused by the trade war have evidently weighed heavily on global growth this year, following the imposition of billions of dollars’ worth of tariffs on goods in China and the US. Even the International Monetary Fund has calculated that the trade war between these two superpowers will have shaved almost one percentage point off global growth by the end of 2019.

Last week saw Allied Heads of State and Government – including President Trump – gather in London to commemorate the 70th anniversary of NATO. But after two difficult and turbulent days, it became evident that the 29 heads of government had failed to overcome discord in their ranks.

President Trump branded Canadian Prime Minister Justin Trudeau “two faced”, attacking him for failing to meet a NATO target on military spending. He then threatened to retaliate against countries trying to raise taxes on US technology companies; but this was rebuffed by those countries, which pledged to press on with their new digital levies. Intellectual properties, military spending and global trade negotiations have become sources of discord around the world in recent times, and this is likely to continue for some time.

The Queen then hosted a reception for the NATO leaders at Buckingham Palace, but even this was not without incident. Hundreds of anti-Donald Trump demonstrators blocked roads, while footage emerged of some leaders expressing their displeasure over some of the US president’s comments over the two-day event.

In the UK, all the main party leaders continued with their campaigning ahead of Thursday’s general election. In an open letter, Conservative Party leader Boris Johnson described next Thursday’s poll as “historic” and an opportunity to “move forward” after Brexit, pledging to deliver Brexit on the 31 January 2020 and implement a tax-cutting budget – all within 100 days of a Conservative victory.

Labour leader Jeremy Corbyn, on the other hand, has spoken of a “chance to vote for hope” and claims that he has the most ambitious plan to transform the country that it has seen in decades. But the challenge that the Labour leader has is to convince the electorate that the country would be in safe hands under his leadership: after all, his ambitious policies include renationalising large parts of the UK economy – a move which his detractors claim could take the country back to those dark days of the 1970s.

This is clearly a two-horse race – the Liberal Democrats and the SNP have been relegated to the wings and would only come into play in the event of a hung parliament and the need to form a coalition. However, both have made it very clear that they are not in favour of Mr Johnson being re-elected: both parties want the UK to remain in the EU and SNP leader Nicola Sturgeon is determined to secure a second Scottish Independence referendum as soon as possible.

All parties, however, are firmly committed to delivering a green agenda. All are going to considerable efforts to demonstrate their green credentials and their resolve to make the UK – and indeed the world – a greener, cleaner and safer place for future generations.

As far as the UK economy is concerned, the Confederation of British Industry (CBI) believes that we could see a pick-up in speed by 2021 if the headwinds from Brexit were lifted and the country left the EU by 31 January 2020 with a good trade deal.

In the US, the jobs data released last week suggests that the economy is on a stronger footing that previously thought. This should allow the Federal Reserve Bank to hold interest rates steady when it delivers next week’s final policy decision for 2019. Although this will not be welcomed positively by President Trump – given his current enthusiasm for lower interest rates in the US – it might be greeted more positively by the markets.

Elsewhere, the latest Purchasing Managers’ Index statistics remain mixed, but some improvements suggest that the worst of the slowdown is behind us. US data remains crucially important and last week’s better-than-expected jobs numbers have manifestly helped market sentiment.

The US dollar has been bolstered and the fading prospects of a rate cut have pushed down gold prices. In the UK, the likelihood of a Conservative election victory has further strengthened the pound and been well received by the FTSE 250 Index, given its exposure to more domestic businesses.

While the global economy has shown signs of weakness in recent months, the expectation is that 2020 should see a recovery. With the leading central banks around the world having become more dovish again by printing money, expanding their balance sheets and lowering interest rates, the likelihood is that all this will have a positive influence on the global economy and its stock markets.

The uncertainty surrounding the trade war and the political backdrop will most likely keep risk assets – such as global equities – quite volatile, with the markets ebbing and flowing in time with the daily noise from the media. However, if global growth and corporate profitability pick up, then equities should continue to outperform bonds throughout 2020.


Peter Lowman is the Chief Investment Officer at Investment Quorum, a Director of the company and an integral member of our investment committee.

This article does not constitute specific advice and investors should bear in mind that capital invested is not guaranteed. Investment Quorum is authorised and regulated by the Financial Conduct Authority.

If you would like to hear more about our wealth management services then please do not hesitate to call us on 0207 337 1390 or contact us via email. We would love to hear from you.

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