Your Spring Newsletter 2019

Market Overview


The growing uncertainty of late 2018 gave way to hope of new-year resolutions to some of the political battles that affected the fourth quarter of 2018. 

The festive period brought further declines to stock markets, with US indices posting their worst-ever Christmas Eve, and the Japanese market falling 5% on Christmas Day. 

However, in what appeared to be something of a Christmas miracle, the passing of the 25th December brought about sudden and immediate positivity from investors. The 26th December saw the Dow Jones (the index tracking the 30 largest companies in the United States) recorded its largest-ever one-day gain, while other world indices showed similarly impressive increases. 

Over the first few weeks of the New Year, progress seemed to be apparent in several of the areas that have caused so much consternation in recent months. 

On the 7th January official delegations from the US and China began three days of talks to find a solution to the trade dispute. While no definitive outcome was expected at this stage, the rhetoric was positive. Both sides have admitted that they have their differences but, most importantly, have agreed to continue to work towards finding a truce. The announcement on the 24th February that the tariff increases pencilled in for 1st March would not be going ahead signalled further progress. More recently, at the end of March, comments from Donald Trump that trade talks continue to proceed “very well” bring confidence that an agreement may be in sight.

January saw China post the ‘lowest pace of economic growth in 28 years’, but, as the weeks passed, the fear that this was a longer-term trend seemed to lessen. The slump in Chinese manufacturing data that had set in from August ended with a return to growth in March, indicating that the Chinese slowdown may have reached its nadir, helping to tempt investors back to its shores. This positivity spread to Japan and Emerging Markets, both of which have been taking much of their lead from their larger neighbour in recent months.

Positive news in Europe was harder to come by for the majority of the first quarter of the year. Signals that once US-China trade negotiations are complete, President Trump may turn his attention to Germany, currently its fifth largest trading partner, caused some nervousness. This was not helped by a significant cut to growth forecasts for the year from the European Central Bank. However, bringing a glimpse of light through the clouds in late March was an unexpected rise in confidence among German companies. The ifo Business Climate Index, a highly-regarded early indicator of economic developments in Germany, rose significantly ahead of expectations. This brings hope that, as with China, we may have ridden out the worst of the storms, at least for the short term.

Across the Channel, in the UK, if we were to attempt to distil the past three months of Brexit negotiations into manageable and meaningful text, then it’s fair to say that we may still be writing by the time the 12th April arrives and the UK must decide whether or not to hold European Parliament elections. Suffice to say that the hope at the start of the year, that by the 29th March we would have some clarity on the outcome of negotiations, has ebbed away, with Parliament having failed to reach a consensus. 

There remains such diversity in the potential outcomes that may eventually bring an end to the discussions, that attempting to second guess where we go from here is little more than a fool’s errand. Even the most learned and political minds are seemingly baffled. As such, the investment analysts we speak to agree they must resist the option to position portfolios for a single outcome and instead ensure they are well diversified.

The outlook for the next quarter seems eerily reminiscent of the last, with hope from us all that some of the ongoing uncertainty may finally be laid to rest. With US-China trade talks seemingly moving in the right direction, and the anticipation that extended Brexit talks should not extend beyond the end of May due to European Parliament elections, we continue with cautious optimism for the coming months.