Markets Regain Some Optimism
The markets have made a broadly positive start to 2019 so far, in sharp contrast with a weak final quarter of 2018. The recent move upwards in equity markets is supported by the US stepping back from a more aggressive path for interest rate increases, causing bonds to also rally. Nonetheless, as is often the case, various political and economic concerns remain.
In the US, the government was partially shut down for 35 days, the longest ever such shutdown, as a newly Democrat-controlled House looks to challenge the central themes of President Trump’s agenda. US economic data has been mixed, whilst consumer confidence has declined, due in the part to the disruption. Jobs data remains robust at this point.
Trade tensions, especially between US and China, continue to weigh, given the central importance of the US-China relationship to global growth. However, the comments by the Federal Reserve chair that increases in interest rates are potentially on hold for the time being, combined with strongly positive US employment data early in January, have helped calm markets, to a degree.
Looking to Europe, challenges remain as the Brexit deadline draws closer for the UK without a clear path to resolution. It is important to remember that Moola portfolios are internationally-diversified and currency-hedged, so the specific UK equity and currency impact of any Brexit outcome is reduced. Elsewhere in Europe growth appears sluggish, though Italy’s budget issues with the EU and the Yellow Jacket protests in France both appear to be largely resolved.
In Asia, Chinese growth slowed to 6.5% in the fourth quarter. Though this level of growth would be the envy of many other countries, it’s the slowest rate of growth for China since the financial crisis and a signal of the impact of trade tensions. Elsewhere in Asia, Japanese growth remains muted, though policy support for growth continues.
As such, we start the year with some concerns for global growth. However, this is potentially offset by reduced expectations for higher interest rates, and some positive recent economic data. 2019 has begun with a little less concern, and a little more optimism than when 2018 ended.
Photo: Yang Shuo