Last month we said that a number of issues, such as the US/China trade deal, the pace of interest rate rises and the avoidance of a no-deal Brexit, could be resolved early in 2019. Since then the Federal Reserve has said it will be “patient”, talks are ongoing with China and the US and a ‘no-deal’ Brexit is a little less likely than it was at the start of the year. This has proved supportive for equity markets as they experienced a recovery in January after a torrid end to 2018. Since the low of Christmas Eve, the US S&P 500 Index has risen by 15%. Other global equity markets have also recovered sharply.
The trade tensions have hurt China, Europe and there have been some signs that they are now beginning to hurt the US. The rhetoric from the US administration towards China has softened somewhat and any deal would be a welcome relief for markets.
Global equity prices rebounded sharply in January after a tumultuous December, due to corporate earnings beating expectations, the potential for a resolution to the China Trade war and a more dovish Fed. All major international indexes posted gains with the abating of current geopolitical issues such as U.S.-China trade tensions outweighing the slow global economic growth.
US equity prices were boosted by the optimism for a trade resolution with China. However, tensions remain high due to the filing of charges against Huawei with claims of wire fraud, infringement of Iran sanctions and IP theft. Talks between China’s economic advisor and the US’s trade representative are due to take place in early February, with an agreement having to be met within a month, or further tariffs maybe implemented.
Despite the US governmental shut down, the January labour report beat expectations. Following the January meeting, the Fed confirmed that the target rate range of 2.25-2.50% would remain constant and indicated that it would be patient with regard to any future rate hikes.
Prime minister May had a difficult January. Her deal was put to MPs on 15th January but was defeated by a large margin. Further amendments to the deal have been made and she is returning to the EU in order to hopefully gain a better deal. Notably towards the end of January the Cooper-Boles amendment to defer Article 50 deadline led to a rise in the pound to above 1.30 against the dollar. However, the amendment was rejected on 29th January which led to a further drop of sterling.
Overall, the market is likely to be affected over the next month by: China-US trade tensions, potential US Governmental shutdown and Brexit. Other areas which could affect the market include the slowing of Chinese growth and political instability in EU parliamentary elections.
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This document has been produced by Jordan Buchanan using data supplied by Quilter Cheviot, and from publicly available data sourced from Bloomberg.com.