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Global Markets to 11 February 2019


  • Global equity markets begin to refocus on the US-China trade talks and the likelihood of the two global superpowers finding a meaningful solution.
  • Following the S&P 500 Index recording its best January since 1987, the markets are now reacting to weaker economic data from the Eurozone and China.
  • The Bank of England postpones further interest rate rises, downgrading its economic forecast amid mounting concerns over Brexit.
  • The likelihood of the European Central Bank raising interest rates this year decreases because of the Eurozone’s weakening economic backdrop.
  • In the UK, Brexit rumbles on with Prime Minister Theresa May still adamant that she is on course to meet the March deadline.
  • After such a positive start to the year, global equity markets are now beginning to reflect some of those unresolved problems of 2018.

Global Market Summary

Global equity markets rallied impressively in January, but pessimism regarding the outcome of the US-China trade talks has begun to cast some doubts as to whether this year’s rebound is sustainable over the very short term.

Positive sentiment about the talks had actually been helping the markets in January following that disastrous December flash crash, but last week’s announcement that US President Donald Trump had ruled out any meeting with his counterpart Xi Jinping before the 1 March 2019 deadline gave rise for some concern.

The March deadline marks the end of the 90-day truce between the two superpowers, after which tariffs on about US$200 billion worth of Chinese exports to the US will increase from 10% to 25%. Anxious traders have already started to react to the possibility of the tit-for-tat trade war resuming, leading to Wall Street recording three straight days of losses this week.

While it is unlikely that the US and China will totally resolve their differences regarding this difficult issue, it is very important that the two superpowers flesh out some form of agreement, as it is likely to affect sentiment around future corporate investment decisions. Any hostile outcome could lead to many global companies taking evasive action, such as cutting costs, shedding jobs and implementing aggressive structural changes to protect their market leadership positions and profitability.

Other challenges for the US President will include trying to ensure that he is the Republican Party’s candidate for the November 2020 elections. The campaign is already underway for the Democrats – Senator Elizabeth Warren formally launched her bid for nomination at the weekend. A strong US economy, a healthy backdrop for corporations and ample jobs for the US electorate will all be crucial to Trump securing a victory. A bad outcome of the trade war with China would be very unhelpful and perhaps dent his candidacy for a second term. It has actually already started to affect growth in the wider global economy – the Chinese economy has slowed and there is regional disruption across Europe.

A shock fall in German industrial output in December has already dashed any hopes of a rebound in the German economy, pointing to trouble ahead for Europe. With Italy recording two successive quarters of negative growth, France slipping towards stagflation and Germany flirting with a recession, the backdrop for the Eurozone looks problematic.

The drag on the European economy has manifestly resulted from the tightening of global financial conditions, with the US central bank raising interest rates. Shocks from foreign trade, triggered by the impact of deleveraging on the Chinese economy, have also taken their toll.

This has led to the expectation that the European Central Bank will postpone any interest rate rises at its next ECB meeting, in light of the Eurozone’s deterioration. And some commentators are saying that the US Federal Reserve Bank might have made a policy error in overreacting to the strength of the US economic recovery.

This seems to have been borne out by a recent statement from ECB board member Benoît Cœuré, who declared that the slowdown had “surprised us”. We need to understand how long-term this shock will be to Eurozone growth. As things currently stand, the jury appears to be out.

The Bank of England’s latest assessment asserts that continuing uncertainty over Brexit has left the UK economy the weakest it has been since the financial crisis, impacting both business investment and household activity. Trade tensions, as well as deteriorating growth in the US, China and the Eurozone have all had a detrimental effect on the UK, perhaps more than the Bank had previously predicted. This has led to the Governor of the Bank of England Mark Carney announcing that it will leave any further interest rate rises on hold ahead of Britain leaving the European Union.

Regarding Brexit, UK Prime Minister Theresa May is due to report back to MPs this week following her recent attempts to try and persuade the European Union to make last-minute changes to the withdrawal agreement. However, European Commission President Jean-Claude Juncker seems to have ruled out any amendments to it. With fewer than 50 days left until the UK leaves the EU, things are likely to remain tense between the Houses of Parliament, the government and the Union. Meanwhile, the UK stock market and sterling are continually reacting to any directional change in the possible outcome.

What has happened in the equity markets since the start of the year can only be explained as a sugar rush of euphoria, or a relief rally throughout January, following an awful December which saw the markets overact to fear and panic. When markets work their way back up following a fall in such a forceful manner, they tend to overshoot on the upside, possibly opening themselves up to further disappointment.

Some of the issues that characterised 2018 – such as trade war tensions, US central bank misperception, a strong US dollar and Brexit – are still with us today, and will, therefore, have directional market ramifications over the coming months.

In essence, the leading central banks are becoming more dovish about further tightening in 2019, a corporate earnings recession is gaining momentum and global growth is likely to moderate this year and into 2020. Therefore, global investors need to be selective in their investment approach, given that certain stocks and sectors will be negatively affected by these issues. Nonetheless, the fast pace of technological change will continue and many visionary global businesses will enjoy growth, offering investors exciting long-term investment prospects. Consequently, we remain positive regarding the outlook for global equity markets, while tolerating further volatility throughout the year.


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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