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Global Markets to 25 November 2019

Highlights

  • Wall Street continues to flourish, trading within a narrow range and in sight of its all-time high.
  • Washington and Beijing seem eager to sign a phase one trade agreement, but Presidents Donald Trump and Xi Jingping are still unclear regarding the content and timing of this significant development.
  • In the UK, each of the leading parties launch their manifestos, with some party leaders presenting them during a live television debate.
  • Consumer demand has been healthy and has kept the world out of recession, possibly signalling the end of the industrial recession.
  • As 2019 draws to a close, many leading institutions and stock market forecasters share their predictions for 2020.
  • Global growth remains satisfactory (although weaker than expected), while the asset classes of global bonds, equities and gold bullion have all delivered robust returns for the year.

Global Market Summary

Wall Street continues to ebb and flow with the ongoing speculation in Washington and Beijing over the trade negotiations. Both Presidents Trump and Xi Jingping continue to give out mixed messages regarding the contents of the initial phase one agreement and possible dates for its signing.

President Xi Jingping had indicated that China was keen to work out an initial trade agreement with the US. But then over the weekend at the G20 meeting in Japan, Chinese Foreign Minister Wang Yi criticised the US for engaging in unilateralism and protectionism, which is damaging multilateralism and the multilateral trading system.

The Chinese administration went on to state that it would increase penalties for violations of intellectual property rights as it attempts to address the most important sticking points in its trade talks with the US.

President Trump was quoted as saying that a trade agreement was very close, but then when interviewed on Fox News, claimed that Beijing wanted a deal more than he did. The US also incensed China by passing two bills in the House of Representatives backing the protesters in Hong Kong and sending a warning to Beijing about human rights abuses.

This comes at a delicate time: the trade deal that the US and China are trying to negotiate needs to be sensible and fair and will indubitably affect the rest of the world. Clearly, whatever is agreed between the two superpowers, China’s expansion and growth are inevitable. The same can be said for other large economies – such as India, which is set to become another huge global economic influence.

In the UK, the battle for Number Ten saw four party leaders – Jeremy Corbyn, Boris Johnson, Nicola Sturgeon and Jo Swinson – engage in a live television debate and take questions from the general public.

Labour launched its manifesto, promising to renationalise the railways and the Royal Mail, as well as water and energy companies as part of its bid to transform the country. Its policy document also indicated that there would be an £11 billion windfall tax on oil and gas companies, creating a “just transition fund” to help shift the UK towards a greener economy.

Mr Corbyn’s proposal to renationalise BT’s Openreach and offer free broadband everyone is seen as a ploy to capture the younger vote, as are his party’s green policies (all evidence would suggest that the younger generation sees climate change as a more pressing issue than Brexit).

The Labour leader has also pledged to deliver Brexit within six months of an election victory, while confirming his intention to adopt a neutral stance in a fresh vote on the UK’s membership of the EU.

An array of higher taxes under Corbyn – which he accepts would be unpopular among the rich – and a further promise of a huge public spending spree have sparked real fears that were he to win, the UK would return to the dark days of the 1970s.

If, however, we were to end up with a hung parliament, then the SNP under First Minister Nicola Sturgeon could become crucial in the forming of any new government. She has already indicated that under no circumstances would she allow Boris Johnson back into Number Ten, meaning that Jeremy Corbyn would be forced to compromise over a second Scottish referendum in order to secure the SNP’s support in forming a coalition government.

The Liberal Democrat Party’s leader Jo Swinson has also made it abundantly clear that she would not support the Conservatives – the Lib Dems are firmly in the “remain” camp, believing that the UK would be much better off staying in the EU, and would have more money to spend and invest in Britain’s communities.

During the television debate, Boris Johnson was asked questions by younger audience members about his trustworthiness as PM, and why a report into Russian interference in UK democracy had not yet been published. His response was simply that he was passionate about fulfilling the will of the people and delivering on the results of the 23 June 2016 referendum.

Regarding the report into Russian interference, he asserted that there was no evidence of any such interference – a claim that was met with suggestions that if that were indeed the case, then it should be released.

The Conservative party has since launched its manifesto, with pledges to keep income tax, VAT and national insurance at current levels for five years. It has also committed to protecting the value of state pensions, boosting spending on childcare during school terms and holidays by £1 billion and cutting annual energy bills by up to £750 for those in social housing.

The Conservative party manifesto appears designed to focus voters’ minds on life post-Brexit. Under Johnson, it wants to concentrate its energies on domestic issues and future trade agreements, tapping into Britain’s future potential in the world, rather than allowing an unresolved Brexit to drag on.

The Tories are currently comfortably ahead of Labour in the polls, affording them some level of complacency. But previous elections have confirmed that such a picture can change very quickly.

Nevertheless, Boris Johnson will need to convince uncertain voters that he is the man to lead the country over the next few years and resolve Brexit once and for all. And with many bridges between the Tories and other parties having been burned, he needs to win with a clear majority.

The markets have suffered through a number of difficult periods over the last 12 months, with trade tariffs affecting industrial production and their falling in many regions throughout the world. Fortunately, consumer demand and services have held steady, preventing most of the world from falling into recession.

Global equity markets have rallied throughout the year in anticipation of an economic recovery – despite a period of disappointing corporate earnings. The central banks have evidently assisted when investors saw that a further period of monetary loosening was about to play out. This situation is likely to continue over the next few months, giving some support to risk assets, such as equities.

However, with Wall Street hovering around its all-time high and momentum threatening to see the US stock market rise further, global investors are starting to wonder what next year has in store for them. Globally, there are enough unresolved factors to create concern: trade-related anxieties, Brexit, the slowing Chinese economy and Germany edging towards recession are all enough to negatively impact market sentiment.

Stock market forecasters are understandably being relatively cautious with their predictions for 2020, since this year equities, bonds and gold are all likely to see positive returns – which is very rare.

In all probability, until we have a trade deal ratified by the two superpowers, an end to the Brexit saga and a pick-up in industrial production, the markets will continue to suffer periods of volatility. But with central bank policy remaining loose, investors are likely to tackle these concerns head-on, which tends to be a good thing for bull markets: this year, bad news has been good news for the markets.


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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