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Market round-up: 3 – 7 December 2018

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The information in this blog or any response to comments should not be regarded as financial advice. If you are unsure of any of the terminology used you should seek financial advice. Remember that the value of investments can go down as well as up, and could be worth less than what was paid in. The information is based on our understanding in December 2018.

In a week that started so promisingly for global markets, the mood quickly turned sour erasing any gains for the year with US bourses suffering their worst day since October.

Monday

Investors were filled with more than just festive cheer on Monday morning as it appeared that the US and China had finally found some middle ground over their long running trade dispute. The two global superpowers appeared to broker a 90-day ceasefire during a high stakes G20 summit held in Buenos Aires over the weekend, agreeing to halt additional tariffs and negotiate a deal that worked for both. Asian shares rallied hard on the news, led by China’s Shenzhen benchmark, up 2.6%. Western benchmarks followed the trend, with mining and financial stocks leading the way.

However as Monday wore on, perceptions changed towards the deal as it appeared it would merely pause escalations, rather than provide a comprehensive breakthrough. Under scrutiny, it seems that what had been agreed in Argentina was about as woolly as a Christmas jumper, the lack of detail evident as neither side could even agree on when the truce even started or will start. Donald Trump’s Twitter account did not help things; “…remember, I am a tariff man” he tweeted. This sent shudders through just about every market, with the tech heavy NASDAQ the worst affected, falling 3.8% on Tuesday.

 

Thursday

Expectations of a trade war truce had further unwound by Thursday however as Canadian authorities, at the behest of Washington, arrested Meng Wanzhou, the Chief Financial Officer of Chinese Telecommunications giant Huawei, on allegedly violating US imposed Iran sanctions.  All three Wall Street Indices dropped over 2% on the news, only to recover most of the losses later on. Such was the pressure on US markets, the CME Group was forced to intervene with market pauses during the first minutes of trading to prevent severe price movements. The FTSE 100 fared even worse, plummeting over 3%, led lower by falling commodity prices.

As investors questioned long term economic growth, reflected in global bourses being punished throughout the week, safe haven assets predictably performed well. The spread between the 10 year and its 2-year counterpart shrank to its lowest since the start of the financial crisis, highlighting that investors are favouring gaining protection further down the line and reinforcing  perceptions of slower economic growth to come.

 

Friday

Some solace was to come at the end of the week, as Friday saw some element of poise return. Markets opened up sharply as bargain hunters provided some support coupled with soothing words from the Federal Reserve the night before. Investors also  looked forward to important US labour data, released on Friday afternoon.

 

The coming week will see investor focus shift constantly throughout the week between the City of London and the City of Westminster.

Tuesday will see if nearly two and a half years’ worth of Brexit negotiations will come to fruition as parliament is set to decide the passage of Theresa May’s much maligned Brexit deal. Although nothing is for certain when it comes to Brexit, beaten up domestic currency and stock markets are hinting at how little hope there is for any kind of agreement in parliament. The overwhelming consensus seems to be that reaching a parliamentary majority looks unlikely, with its rejection then flinging open the door to a wide range of adverse outcomes. Although the rejection of a deal with time fast running out could provide heightened volatility, especially in the currency markets, many analysts argue that May’s defeat is already fully priced into markets. With very few thinking Brexit negotiations will now be wrapped up in a bow by Christmas, much will depend on the “meaningful vote”. Depending on the results, the overriding issue could be whether May’s deal needs major surgery or just a few tweaks to get it through at a later date.

Although events in the corridors of power should dictate domestic economic news this week, the Office for National Statistics will still have a profound part to play, releasing UK GDP, Manufacturing Production and Average Earnings Index data during the start of the week. As the chaos continues in Westminster, those in the City of London will be hoping that the domestic economy is on a firmer footing. GDP numbers will be of particular note as further anaemic economic growth should only pour fuel on the ongoing Brexit debate.

The week will be rounded off with US Core Retail Sales data. With some cracks starting to appear in the US economy and with an ongoing trade war rumbling on in the background, it will be interesting to see whether the US consumer is still as buoyant as they have been for previous readings.

 

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