September 2019 Markets in a Minute

Posted by siteadmin on Tuesday 19th of November 2019.

Markets respond to China US trade rhetoric 

  • Markets delivered a positive return in July, maintaining the upward trend enjoyed so far this year. At the very end of the month, however, and into the early days
    of August, souring US-China trade rhetoric weighed heavily on market sentiment. ‘Surprise’ additional US tariffs on Chinese imports will place further margin pressure upon US businesses and eat into the spending power of US consumers.
  • What happens next between these two nations is extremely hard to forecast, but it would be brave to assume a swift and immediate resolution will be forthcoming.
  • China has shown it is committed to fighting its corner, taking the bold move to devalue its currency against the US dollar. Such steps help to maintain the competitiveness of its goods for US firms. Whilst this policy might seem a perfectly reasonable response there are wider implications that limit the extent to which this avenue can be pursued.
  • A weaker Chinese currency increases the competitiveness of Chinese goods on a global stage. Persistent moves of this type, therefore, will aggravate other important global trading partners. Currency devaluations also threaten capital flight from Chinese businesses and consumers, eager to maintain their spending power. Any such capital migration would result in solvency issues for the banking sector. be received poorly by stock markets but it needn’t call time on the global economic cycle. Not only do such forces compel central bankers to deliver an increasingly generous policy setting, it may do the same for governments. Certainly in China we might expect to see more stimulative policies, aimed at supporting demand. Such a strategy is sure to be helpful for the global economy.
  • As has been discussed many times in these reports, building trade friction between the world’s two largest economies will be received poorly by stock markets but it needn’t call time on the global economic cycle.
  • Not only do such forces compel central bankers to deliver an increasingly generous policy setting, it may do the same for governments. Certainly in China we might expect to see more stimulative policies, aimed at supporting demand. Such a strategy is sure to be helpful for the global economy.

UK political shakeup 

  • Domestically it’s been another busy month as our new Prime Minister was confirmed. The government’s new Brexit strategy is one which seeks to strike an improved deal relative to the one already negotiated. The primary hand being played is an increased willingness to accept ‘No deal’ if no such progress is made.
  • This approach, so far, does not seem to have altered the EU’s position, elevating the probability of ‘No deal’. Parliamentary preferences inform there is little appetite for such an outcome, but momentum may be shifting in Westminster. Legislative shenanigans or, perhaps, complications, also suggest Parliament may not be able to stop such an outcome either; though our base case remains that it can and will.
  • Despite the news flow, the global economic cycle remains in decent shape, not least given the pace of job creation and the increasingly generous level of interest rates. Once again this might prove another time to hold your nerve and see it out.
Period FTSE 100 S&P 500 DJ Euro Stoxx Topix MSCI Asia sxJap MSCI Emerging Markets
1M 2.23% 5.43% 1.77% 4.20% 2.16% 2.74%
3M 3.23% 8.58% 6.57% 5.42% 2.40% 4.10%
6M 11.57% 19.60% 17.83% 8.93% 9.04% 8.13%
YTD 15.62% 25.48% 20.82% 12.22% 13.65% 14.23%
1Y 2.23% 16.05% 4.22% 1.12% 4.47% 5.51%
2Y 11.83% 35.53% 9.77% 11.01% 10.72% 11.03%
3Y 27.51% 57.72% 38.87% 29.05% 41.79% 39.51%
4Y 33.29% 96.74% 43.81% 50.31% 65.51% 64.43%
5Y 37.38% 136.41% 52.78% 76.70% 68.11% 54.45%