Weekly Market Report 20 December 2019
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Welcome to our weekly newsletter, where the Manager summarises the key market developments over the last seven days.

The Noise

Andrew Bailey has been announced as the next Bank of England boss this week. The ex-FCA chief is now tasked with steering the world’s fifth biggest economy and complex financial services industry through Brexit. In Mark Carney’s penultimate rate-setting meeting this week, the BoE voted to keep rates steady rather than make a pre-emptive cut.

The US House of Representatives impeached President Trump this week on charges of abuse of power and obstruction of Congress. Heady US markets took little notice of the developments, largely because it is unlikely that the President will be removed from office when the trial moves to the Republican-controlled Senate.

The Pound has lost all of its post-election gains over the week as markets absorbed the fact that despite Boris Johnson’s majority in the Commons, there is still a sizeable risk of a disorderly Brexit, particularly as Johnson announced plans to set a Brexit deadline of December 2020, with or without a trade deal.

The Numbers

GBP Performance to 19/12/19
1 Week
YTD
Absolute Level
Equity GBP Total Return (MSCI)

UK (MSCI UK)

4.00%

16.80%

6778

Europe (MSCI Europe)

2.40%

19.60%

7097

US (MSCI USA)

1.80%

26.90%

8643

Japan (MSCI Japan)

2.00%

17.20%

6828

Emerging Markets (MSCI Emerging)

4.00%

14.70%

523

Fixed Income GBP Total Return

UK Government (Barclays Sterling Gilts Index)

0.30%

7.40%

293

Investment Grade Hedged (Barclays Global Aggregate Corporate Bond Index)

0.30%

10.60%

303

High Yield Bonds Hedged (Barclays Global High Yield Index)

0.90%

10.80%

528

GBP Performance to 19/12/19
1 Week
YTD
Absolute Level
Currency Moves

GBP vs USD

-1.20%

2.00%

1.30

GBP vs EUR

-1.10%

5.20%

1.17

GBP vs JPY

-1.10%

1.70%

142

Commodities GBP Return

Gold (in £)

1.90%

13.10%

1135

Oil (in $)

4.10%

23.00%

61

Source: Bloomberg, data as at 19/12/2019

The Nuance

As 2019 draws to a close, it’s worth looking back over what has been a year full of surprises. This time, last year, markets were in the doldrums, but we were about to head into the largest January stock market upswing for 30 years. That first quarter set the tone for what would be a muddled year for market news; with a dovish shift from the Fed combining with mounting concerns over global growth levels leading to an environment where global equities were rising alongside government bonds.

By the time we had reached the summer months, sentiment was weakened as Trump’s trade war with China began to heat up, and markets digested the fact that the dispute would start to eat into global growth. Poor economic data and the inversion of the US yield curve then reignited fears that the ageing bull market would finally come to an end, and we would enter a recession. In July, the Fed stepped in, cutting rates for the first time since 2008. A month later, the ECB followed suit, cutting rates into deeper negative territory and embarking on a fresh round of quantitative easing.

And now here we are, in a year dogged by Brexit, trade wars and slowing global growth, in the midst of another record-breaking market rally. The improvement in sentiment is due to an uptick in global PMI numbers, an apparent thawing of tensions between the world’s two major superpowers and the fact that Central Bank intervention seems to have done enough to keep the world economy growing at an acceptable pace as we head into a new decade. For the Manager, this year has shown just how important it is to invest in businesses that you believe in rather than try to second guess the market’s movements. This would have been a very easy year in which to be caught out by making big macroeconomic calls, as indeed we saw with a number of major bond funds in the middle of the year. As we enter a new decade, the Manager remains cautious on global growth but confident in the ability of good companies to power returns for investors.

Quote of the week

“Well, the USDA took Wakanda off the list. Guess we’re in a trade war with them too.”

Francis Tseng, software engineer

Film-goers will recognise the name Wakanda as the fictional secret kingdom from sci-fi blockbuster Black Panther, where mythical substance vibranium imbues the nation with scientific superpowers. It also happened to feature on the United States Department of Agriculture’s (USDA) online list of nations that have free trade agreements with the United States this week. Tseng, a New-York based software engineer was the first to notice its appearance, calling it out on Twitter. The USDA hastily removed the mythical country from the list, later admitting that it was a mistake.

Source: https://uk.reuters.com

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