Advisory Investment Service | Adrian Clayton
03 Dec 18

Ravenscroft weekly update - Is the tide turning in favour of a Santa Claus rally?

Two events this week should see investor emphasis shift back towards the bull market in what might not be just a statistical probability event. First was the G20 meeting in Argentina and all the associated side meetings and summits between world leaders, and the second will be the potential adjustment to US interest rate policy following comments late last week from US Federal Reserve chairman Jay Powell. Neither event however should be seen as a full blown change in direction for long-term investment strategy.

The announcement yesterday following the eagerly awaited US – Sino summit is a boost for market confidence. The US will not increase its existing tariffs on Chinese goods for 90 days, allowing policy makers the chance to undertake further negotiations. In return, China has said it will look to buy a substantial amount of agriculture, energy, industrial and other goods from the US. This will be seen as a positive move against the argument that the introduction of trade tariffs will lead to a slowdown in global growth. In any respect, the opening up of each other’s markets will be seen as a win for both sides. I would caution that this is not a suspension of the trade war itself, but a suspension of the escalation of the trade war.

Another announcement over the weekend, which again involved the US, was the agreement for a trade deal with Canada and Mexico, which will replace the existing NAFTA agreement. I can’t help thinking there are similarities here between this and the Brexit deal. The Canadian Prime Minister Justin Trudeau commented “it maintains stability for Canada’s entire economy”, a strikingly similar sentiment to those made by Theresa May. Whether either of those trade deals is actually ratified, it does show the rise in anti-globalisation sentiment has been brought into perspective and there will be a greater concentration on the unfairness of existing trade arrangements around the world.

Also noteworthy for investors last week was the speech from the Federal Reserve chairman Powell, which delighted the US market with its doveish tone. His stance in October suggested that US rates were “a long way” from neutral, giving rise to jitters about the number and scope of forthcoming US interest rate rises, while this week’s comment was that rates were “just below” the neutral range. The perceived change to future policy, which was enough to boost markets, is seen as a softening of approach, possibly in the face of recent market weakness.

It is doubtful however that this Quantitative Softening was as a result of recent pressure from an attack to policy by non-other than President Trump. If backed into a corner, I fear that we may see a steely determination from Mr Powell to underline his independence from Washington. One battle I hope Trump backs away from.

…and finally, if you do want the statistical backing, then in the past two decades the FTSE’s highest day of December has been between Christmas and the New Year in 19 of the 20 years - a 95% certainty. That’s not bad odds.

As ever, if you wish to discuss these or any issues regarding your investments please don’t hesitate to contact us, we’re here to help.

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