Financial markets have enjoyed a broadly positive start to 2020 following the “Phase 1“ trade deal agreed between the US & China last month.
To illustrate just how positive the mood has been, it’s worth pointing out that every major stock market index has recorded year-to-date gains so far across Europe, Asia and The Americas.
So where do we go from here?
Glad you asked. How much further this current market rally goes will be determined by events which unfold in the near future - we’ve summarised the key drivers and risks for financial markets below. We hope this might serve as a useful point of reference for you as we navigate what promises to be an interesting 2020 ahead.
Key Drivers 👍
Monetary Policy
Financial markets currently expect the US Federal Reserve to continue with its recent supportive stance, keeping interest rates low with a higher likelihood of further rate cuts as opposed to rate increases, as it stands. This expectation was reinforced yesterday with the December US jobs report showing the economy continued adding jobs (positive) with limited wage inflation (also positive insofar as it eliminates any incentive for the Fed to raise interest rates due to inflationary concerns).
Other central banks have also been supportive across major economies via numerous interest rate cuts throughout 2019. Expect this supportive stance to continue in 2020 as economic growth remains sluggish while political risk remains elevated.
US Economic Activity
Americans’ seemingly insatiable consumerist desires have supported the other 2 pillars of the US economy so far - Manufacturing activity has been shrinking over the past few months while the Services sector has been sluggish. Any sustained uptick from US Consumers, Manufacturers or Services in the wake of improving trade conditions could help catapult stock markets well beyond their current record highs.
Key Risks 👎
US / China
With Phase 1 of the US / China trade deal scheduled to be signed off next week, focus will now turn towards Phase 2, which is expected to cover harder-to-negotiate elements. Expect further drama here.
US / EU
Where one trade war starts ending, another may just be getting started. Look for signs of the beginnings of a potential US / EU trade war at the World Economic Forum in Davos later this month, with France’s proposed Digital Services Tax likely to be at the centre of it all.
US Election
This one could also be a driver for financial markets - the second half of 2020 will likely see a shift away from foreign policy wrangling as President Trump focuses on winning the US election. With a strong US economy, the idea of a second Trump term could soon become reality - is the world ready for what that might bring? We don’t think so.
And then there’s the Middle East, North Korea and God-knows-what-else in the form of armed conflicts which could materialise over the year...
What else?
Other issues such as Brexit trade negotiations, the Hong Kong protests, Spanish & Italian elections, multiple political events across emerging market economies & climate change induced extreme weather events will likely continue to impact local stock markets, creating individual winners and losers without making too much of a dent on broader global financial market performance.
On the whole, in the absence of any unforeseen drivers for the global economy (here’s to hoping for some European fiscal stimulus), it feels like we’re in for another year of ups and downs, moving 2 steps forward & 1 step backwards. As always, we’ll be on hand to help make sense of this crazy world, together! 🚀
What Else is Going On?
Christmas Joy isn’t Uniform 🤒
UK Retail
British retailers look like they’ve had a festive season to forget, with total sales falling 0.9% in November & December, causing 2019 to mark the first yearly sales decline since 1995. Christmas trading was better for some than others, affecting individual retailers to varying degrees and creating winners and losers in the process.
Clowns & Monkeys 🤡 🐒
Boeing 737 Max
As if having one of its most widely used plane models grounded wasn’t enough, Boeing now has to deal with the release of damaging internal employee communications concerning the 737 Max which reveal efforts to shirk regulators, one of which suggested the plane was “designed by clowns who were supervised by monkeys”. The 737 Max has been grounded for 10 months, costing the company in excess of $5bn, and the latest revelations signal further losses and even more regulatory scrutiny lie in store for the plane maker. You couldn’t make this stuff up if you tried.
Food Fight! 🍕 🍱
JustEat’s Takeaway(.com)
Shares of JustEat will be purchased by Dutch-headquartered Takeaway.com in an all-share merger valuing JustEat shares at 916p per share at the time the bid was submitted in December. The takeover wasn’t as smooth as initially hoped, with initial merger terms agreed last August but derailed by South Africa based tech investment giant Prosus, who has a track record of investing in global food delivery firms. Takeaway.com’s initial 731p offer was bid higher thanks to unsolicited competing bids from Prosus culminating in a 800p final all cash offer. Takeaway.com came in with an improved bid, and will now create a food delivery giant with 23 subsidiaries across Europe, Canada, Australia and Latin America. The combined firm will have shares listed in Amsterdam and London.
Please know, the value of investments can go up as well as down and you may receive back less than your original investment, meaning, when investing your capital is at risk.
Disclaimer: At Evarvest we believe in making investing and investment education more accessible, but we don’t provide investment advice and individual investors should make their own decisions. While we try our best, we cannot ensure the accuracy of the information we provide.
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