This week's update comes from our investment team.
So far 2019 has shaped up to be a happier time for investors with the investor pessimism of December giving way to a sizable “reboot” of markets. The mood of investors has shifted since the start of December to what market participants sometimes refer to as “risk on”. The catalyst appears to have been the late Christmas present from the US central bank, the Federal Reserve, which has dampened down expectations for higher interest rates.
By Friday’s closing bell, the Dow Jones and the tech laden Nasdaq markets had secured their seventh consecutive weekly gain. Incidentally, this represents their longest winning streak since November 2017. The majority of global stock markets have taken their cue from the US market and have moved higher. Expectations amongst investors seem to be running high despite a week which has seen growth downgrades in Europe and the return of uncertainty in US-Sino trade negotiations.
US-China trade negotiations appeared to stall last week with President Trump’s advisers indicating that there is still a “sizable distance to go” before an agreement on trade can be achieved. It was also confirmed that the US President will now not meet his Chinese counterpart, President Xi Jinping, before the start of March. The timing of this is significant, as this is when US tariffs on Chinese imports are pencilled in to increase from 10 to 25 percent.
In Europe, both the European Commission and the Bank of England have lowered their domestic growth forecasts. The European Commission is now forecasting that the Eurozone economy will grow by 1.3% in 2019, which is sharply down from its previous forecast for the year of 1.9%. The commission blamed a range of factors for its downgrade including weaker Chinese growth, Brexit uncertainty and fiscal problems in Italy. Coupled with this was the news that German industrial production fell 0.4% in December, which was below market expectations of a 0.9% rebound. The Bank of England, as expected, left interest rates on hold at its meeting on Thursday. At the same time, the bank delivered a growth downgrade for the UK economy in part blaming the “fog” of Brexit uncertainty. The bank is now forecasting that the UK economy will see growth of 1.2% with inflation slightly above target at 2.0%.
Returning to the “old chestnut” of Brexit and the Prime Minister, Theresa May met with European Commission President Jean-Claude Juncker on Thursday, in a further bid to secure concessions over the Northern Ireland backstop. Little real progress appears to have been achieved at the meeting and with the clock continuing to tick down to the March deadline, pressure is building for the creation of a smooth path to Brexit.
Away from markets, and what a result for England in the six nations against Les Blues. Good form too from Wales at the Stadio Olimpico in their fixture against Italy which creates the prospect of a tantalising England vs Wales game in two weeks’ time.
Have a good week.
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