Your Winter Newsletter 2019

Market Overview


Geopolitical Issues

The impact of events in the final quarter of 2018 reinforced just how much geopolitical issues have come to matter to investment markets in recent years. At the start of October trade tensions between the world’s two largest trading nations, China and the United States, came to a head. 

In addition, were further setbacks in the UK’s Brexit negotiations; Italian budgetary plans raising eyebrows across the world; and the pace of US Federal Reserve’s interest rate rises showing little sign of slowing. We detail these as a reference point for you below.

In previous months, markets, particularly in the US, had been relatively resilient throughout bouts of concerning news. But this combination sent equity markets into negative territory.


Brexit Uncertainty

The two and half years since the EU Referendum have not been as smooth as many may have imagined and events of the last three months of 2018 encapsulated the to-ing and fro-ing that has hampered the UK since Article 50 was triggered. The positive feeling generated by the news that Theresa May had managed to negotiate a deal with the EU was very short lived. With almost any potential outcome still a possibility, we can only hope that the first three months of 2019 bring us some certainty one way or the other. It has been far too long since the UK and European stock markets have not had this cloud of ambiguity hovering over them.


European Economic Concerns

Across the Channel, the Italian budget caused concerns and a very abrupt end of the honeymoon period for Emmanuel Macron. What started in November as the French public’s outrage over the latest tax increases on diesel and petrol, became much more than that over the following weeks. What the protestors now seem to be calling for is complete political transformation to change the status quo of the last 30 years. 

It is difficult to see just where things can go from here. The demonstrations continue but that there has been a noticeable decline in the number of protestors. The French Government recorded 282,000 people attending the first major protest on November 17th, falling to less than 40,000 by the so-called ‘seventh act’ at the end of December.   


US Politics

In the US, the mid-term elections in November saw the Democrats take control of the House of Representatives and the Republicans retaining control of the Senate. The votes within both houses were close enough that we must consider that neither party was given a clear mandate to govern the country. 

As a result, it is unlikely that Congress will be able to enact much change over the next two years. The first issue arising from this situation has already come to the fore, with Congress failing to agree to the President’s demands to fund the proposed wall at the Mexican border. This led to a partial shutdown of the US Government over the festive period that continues.

The existence of a similar standoff can be seen between Donald Trump and the Federal Reserve. December saw the fourth interest rate hike for the year. However, expectations for further rate increases in 2019 were reduced to two. This is a notable drop from previous expectations earlier in the quarter, which were as high as four. 


Our Outlook

It is a well-worn adage that stock markets hate uncertainty, and the last three months of 2018 offered further proof of this. In reaching the close of business for the year, we were left questioning whether the near 10-year bull market was in its final throes. But while there are many commentators almost insistent that a recession must be on the horizon, it is useful to look at everything in context and take a balanced view.

In fact, the positive news in the last few days of the year suggest investors would be able to celebrate the coming of the New Year with at least a partial smile on their face. Donald Trump and President Xi shared a “long and very good” telephone call and progress on a lasting trade deal was “moving along very well”. 

There is still a way to go, with negotiators due for face-to-face talks early in the New Year. However, between the optimistic tone that emerged following the Presidents’ meeting at the G20 in early December, and these further positive messages, there is hope that this herald’s the end of trade tensions between the nations.

The Italian Senate approved a proposed reduced budget deficit proposition with little opposition, and the lower house of Parliament passed the revised proposals ahead of the end-of-year deadline. 

The fortunes of Emerging Markets over the quarter were heavily linked to events in the US, both on the trade front and in terms of rising interest rates. While earlier in 2018 there were scare stories from Turkey and Argentina, there were fewer major shocks over the last three months to drive down the sector any further than developed markets. In fact, the steadier performance of the region throughout November and December highlighted that there are still attractive investment opportunities to be found.

In conversation with the investments specialists we deal with, there is a feeling that the issues hampering markets at present are not insurmountable. There is no shying away from the fact that global growth is slowing down, but no one single issue is seemingly large enough to bring all markets to a grinding halt.