The UK election drew much attention last week ahead of the decisive Conservative win; sterling rallied a further 1.45% against the dollar last week. Elsewhere, as expected, no surprises were delivered at Lagarde’s first chairing of the ECB meeting. Meanwhile, the Fed reiterated its hold stance during its last meeting of the year. Fed Chair Jerome Powell did however note that risks remain to the downside, highlighting his concerns that “inflation is barely moving” adding that ”persistent” and “significant” inflation levels would be necessary for the central bank to consider a hike. The yield on the benchmark 10-year US Treasury was marginally unchanged at 1.82% and the DXY Index up 0.95%.
The next stage of US tariffs on Chinese goods due on Sunday were averted as the US and China managed to agree an interim deal following China’s agreement to purchase $50bn worth of US agricultural goods and make currency and IP commitments (maybe it's just us, but I’m sure this was all agreed to last month!). Of interest was the USTR’s roll back of September’s tariffs on USD120bn worth of goods, to 7.5% from 15%; we wait and see whether the same will be done on the duties enforced on the initial USD250bn of Chinese imports. Risk assets benefited from the news and the offshore renminbi rallied through the 7 level against the dollar after reports of an agreement mid-week, eventually closing 0.15% higher against the dollar over the week, at 7.014.
In terms of key data last week, China CPI spiked again in Nov to 4.5%, once again due to the swine flu epidemic. The nation said it would sell a further 40,000 tons of pork from its frozen reserves; following the 10,000 tons sold at the end of September. Elsewhere, US CPI surprised to the upside in November, jumping to a one-year high but US retail sales figures disappointed with the Fed’s favoured reading, the retail sales control group, missing market expectations, released at 0.1%. China’s data appeared upbeat with retail sales and industrial output readings both rebounding in November, beating market estimates. Whilst the preliminary reading for German manufacturing PMI missed expectations at a weak 43.4.
This week’s data comprises of Empire manufacturing and Markit PMIs in the US later today. US housing starts and building permits, IP and JOLTS jobs on Tuesday. Wednesday sees UK CPI, and German IFO readings for November, and US consumer confidence readings for December. UK retail sales prints will be of interest on Thursday. The third reading for Q3’19 US GDP (expected at 2.1%qoq annualised) will be watched closely, as will the Fed’s favored PCE Core deflator reading on Friday, expected at 1.5% yoy. The week ends on US sentiment readings.
With this being the last full week for markets ahead of the New Year and with geopolitical events having eased marginally we expect a relatively quiet week for markets. No surprises are expected from central banks meetings in England, Japan, Sweden, Indonesia and Mexico. Meanwhile, Hong Kong Chief Exec. Carrie Lam will meet with Chinese officials in Beijing; markets will keep a keen eye on the developments between the two nations as protests in Hong Kong run into their seventh month. Of importance to many will be the much awaited final movie in the Star Wars Trilogy which debuts on Friday. Also of interest will be the possibility for a US government shutdown, if Congress cannot approve a stopgap measure or an annual spending budget to keep the US government in operation until the beginning of October next year. Meanwhile, the quadruple witching will see elevated trading in the final hours of trading late Friday.
In terms of our 2020 outlook, we see few signs of upward pressure for global growth and limited catalysts to boost benign inflation globally; we expect global bonds to remain supported under these conditions. Inflation targets may be the talk of the town next year as central banks attempt to shift their thinking; China and India, for example, have overshot their targets and have surprisingly not eased. On the flipside, Europe and Japan are continually searching for any signs of inflation. Fiscal policy could make a return, as monetary policy appears to have made slim to little difference; we will watch as Japan’s stimulus package starts to unfold next year. Although there appears to be some form of skinny trade agreement between the US and China, the next phases where more contentious issues will be discussed may result in further downward global economic pressures. Away from the Sino-US trade conflict, we expect trade to remain a major theme globally next year as the US wages war against other nations and Japan and South Korea also battle.
So another year to look forward to, and we are confident of our outperformance continuing in the current environment. We thank our investors for your continued support and look forward to seeing more of you in the New Year.