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Uncertainty prevails

  • Weekly market update
  • 2 minute read

Markets

  • Global equity market performance was negative across the board. In GBP terms, Emerging Markets fell the least, down -1.13%, followed by Japan (-1.97%), then Europe (-2.69%), the UK (-2.95%) and the US (-4.58%).
  • Bonds were positive over the week. UK Gilts and corporate bonds rose +2.50% and +1.01% respectively. In local terms, European government bonds rose +0.34% and US government bonds rose +0.92%.
  • GBP depreciated vs USD, EUR and JPY by -0.18%, -0.74% and -0.86% respectively.
  • In USD terms, the oil price rose +3.30% and gold rose by +2.11%.

Macro

  • Brexit uncertainty remains. Mrs May has now temporally deferred the vote on the withdrawal, ostensibly to address concerns over the NI “backstop” plan. Mrs May also told MP’s she would be speaking to EU leaders ahead of a summit this week, whilst – contemporaneously, the European Court of Justice determined that the UK could unilaterally cancel Brexit altogether. Sterling has continued to be adversely affected. The likely Brexit outcome is currently very unclear.
  • Global markets endured a turbulent day of trading after  the arrest of one of Huawei’s top executives cast doubt on whether the US and China would make their trade truce permanent. Trump added further fuel to the fire, as he took to twitter to reiterate that he is a “tariff man”, reviving the threat of higher levies on Chinese exports to dial up pressure on Beijing. Equity markets reacted with a sell off, whilst the US treasury yield curve spread (the 10 year vs 2 year) fell to an 11 year low, closer to the point of inversion.
  • OPEC and its allies have agreed to cut production by 1.2m barrels a day, despite President Trump’s cries to keep output high. Brent crude responded by rising almost 5% to $63 a barrel, subsequently settling at $61 a barrel. The supply cuts are due to start in January and, if oil price hikes are sustained, this will likely weigh on economic growth in the long-run. In the short-run, airlines stock was impacted given the greater running costs that would be involved.

Our view

  • Global growth remains resilient although there is evidence of the recovery being less synchronised. We expect earnings growth to remain positive and inflation to cause gradual interest rate rises.
  • Despite elevated geopolitical risk, we believe this is an environment favouring equities over bonds.
  • Within our regional equity allocation, we are cautious on UK equities and favour those regions most attractively positioned to benefit from the improvement in the global growth dynamic.

 

Important information
The information contained in this document is believed to be correct but cannot be guaranteed. Past performance is not a reliable indicator of future results. The value of investments and the income from them may fall as well as rise and is not guaranteed. An investor may not get back the original amount invested. Opinions constitute our judgment as at the date shown and are subject to change without notice. This document is not intended as an offer or solicitation to buy or sell securities, nor does it constitute a personal recommendation. Where links to third party websites are provided, Close Brothers Asset Management accepts no responsibility for the content of such websites nor the services, products or items offered through such websites.

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