Markets and key events | 22nd February 2019

Hopes over a US/China trade resolution drives developed markets higher…

It was a strong week for developed equity markets, driven predominantly by speculation that an agreement can be reached between the US and China ahead of the 1st March deadline, when tariffs are due to be increased from 10% to 25% on $200bn worth of Chinese goods into the US.  What little macro data that was released this week continued to point towards a global economic slowdown, however, this was largely brushed aside.

As of 12pm London time on Friday, the US S&P 500 index had climbed 2.5% over the week, the EuroStoxx 600 rose 3.8%, UK’s FTSE All Share rose 2.2% and the Japanese market was up 2.5%.  Emerging markets however, were down 0.5%, although within that, the Chinese Shanghai Composite index rose 2.5%.

…despite Japanese export data reaffirming the global economic slowdown

News that Japanese exports fell 8.4% year over year in January was largely ignored, despite being the steepest decline since October 2016 and being the latest piece of evidence pointing towards a global slowdown.  Exports specifically to China fell by 17.4% for the year. This is all the more significant when you consider that much of the Japanese exports to China are capital equipment goods, used in the manufacturing process of electronics and other consumer products. The Japanese stock market rose on the day, as investors kept their faith in speculation that a trade deal was nearing completion between the US and China.

Oil price rallies as Saudi Arabia announce larger than expected supply cuts

The oil price rallied over the week, on news that Saudi Arabia is planning to make much deeper cuts to supply than expected.  The Brent crude oil price rose 8.6% and US WTI (West Texas Intermediate) rose 9%, with crude oil currently trading at US $67.4 a barrel and $57.5% respectively. This in turn made energy equities one of the better performing sectors over the week.

US Fed minutes reveal further appetite for interest rate hikes

The US Federal Reserve minutes revealed that there remains further appetite for rate increases in the US despite the recent pause, however, there was also unanimous agreement to plan for an end to the Fed’s balance sheet reduction process later this year. Developed market government bond yields were largely unchanged on the news, with 10-year US Treasuries yielding 2.67%, UK Gilts 1.16%, and German Bunds yielding 0.10%.

China bans imports of Australian coal indefinitely

This week, the Australian S&P/ASX 200 finished marginally lower by 0.1%, though the market was lifted late in the week by some positive earnings results. This included improvements coming from the consumer discretionary sector as well as utilities and telecommunications. However, Australian coal miners were hit by the news that China, Australia’s closest trading partner, had banned imports of Australian coal indefinitely. The decision has been cited by the Chinese government as a result of environmental checks, whilst the Australian government have played down concerns that this is politically motivated.

The coal embargo also weighed on the Australian dollar which fell by 1% yesterday. The currency was not helped after forecasts from Westpac that the Reserve Bank of Australia (RBA) could cut interest rates by 25 basis points in their next two meetings, after stronger employment data. This is despite the main interest rate being held at a record low of 1.5% for 27 consecutive meetings. The Australian dollar is trading at $70.9¢.

The information provided above is for Professional Advisers: All data has been sourced from Lipper. Any investment must be made in conjunction with reading the relevant KIID or Investment Mandate. Clients should be aware that the value of investments and the income from the may fall as well as rise and they may not get back the amount originally invested. Investors should note that the views expressed and information given were current at the time of publication but may no longer be so and/or may have been acted upon by the Investment Manager already. Source SmartIM