Welcome to our latest update on the investment market. We take a quick look at some of the key factors that influenced the stock market in December and could continue to do so over the coming months.
Once again, geopolitical tensions and sluggish economic growth continued to impact investment markets as we headed towards the festive period. But there have been some optimistic signs that there will be opportunities for growth and optimism in 2020.
UK
The big news in the UK in December was, of course, the General Election. On the 12th December, Britain headed to the polls with the Conservatives securing a landslide majority. The party won 80 seats and celebrated their largest majority since 1987. With a majority now in place, Brexit continues to be one of the key topics for debate. Boris Johnson continues to ‘get Brexit done’.
But a snapshot of the economy suggests businesses are still struggling:
- Economy figures for October were released in December showed zero growth after contracting in August and September. It marks the worst three months in more than a decade
- The IHS Markit manufacturing Purchasing Managers’ Index (PMI) sank to 48.9 in November. A figure below 50 indicates a decline in the factory sector and it’s the seventh consecutive month of contraction, marking the longest run since 2009
- The PMI for the service sector also showed a contraction, this has been limited to Brits being more cautious with their spending. It fell to 49.3, above the initial estimate but still a decline
- Business investment also suggested that confidence is low. It was flat in the third quarter and up just 0.5% on an annual basis, according to the Office of National Statistics
- Despite November traditionally being a bright spot for retailers, that wasn’t the case in November 2019. With Christmas shoppers leaving gift buying until the last minute, retail sales hit a 19-month low
One piece of news that would have caught the attention of investors, was one of the UK’s biggest property funds banned withdrawals. The £2.5 billion M&G Property Portfolio owns shopping centres across the country. The fund blamed Brexit and the retail downturn for its problems. Nearly £1 billion has been withdrawn from the fund in the last year and it’s been unable to sell commercial property fast enough, leading to the ban.
Europe
There has been some good news and figures coming out of Europe in December.
First, German export increased unexpectedly in October, with demand coming from beyond Europe. After several months of recession risk, the 1.2% increase in exports will be welcomed. In line with this, German business confidence increased too, suggesting the overall outlook is improving in Europe’s biggest economy. The Ifo institute showed managers has a brighter outlook for the next six months after rising for the second consecutive month in December.
Despite Germany acting as a stalwart for the EU, there are still concerns. At her first meeting as President of the European Central Bank, Christine Lagarde stated that global uncertainties were weighing on the eurozone, impacting both manufacturing and investment growth.
US
One of the key features impacting the US is the ongoing trade war with China. But for investors affected, there could be an end in sight. Whilst early in the month Trump suggested a trade deal could wait until after the November 2020 election, progress appears to have been made. After more than two and a half years, a deal has been reached and markets lifted as a result.
Under the US-China trade deal, China has agreed to significantly increase its purchase of US agriculture, manufactured and energy products by some $200 billion over the next two years. In return, the US has dropped plans to introduce further tariffs on Chinese imports and has lowered ones already in place.
That’s not the end of trade news in the US though, Donald Trump has hit Brazil and Argentina with tariffs. The president has reinstated tariffs on steel and aluminium from the nations.
Focusing on the US economy, the downturn in manufacturing continues. New orders slumped, leading to the fourth straight month of contraction in November.
Asia
China’s preliminary trade deal with the US has been welcomed. But Beijing also announced it is lowering tariffs on more than 850 important products, making it cheaper for Chinese firms to buy products from abroad. Starting from January 1st 2020, the move aims to lower trade barriers to support the Chinese economy after growth has slowed to a 20 year low. Items on the list range from frozen pork to high-tech components.
Following six months of social unrest and protest, it’s not surprising that Hong Kong’s economy is set to contract in the final quarter of 2019. The pro-democracy protest has had an impact on the economy, including discouraging tourists from visiting.
Middle East
Saudi Arabia’s state-owned oil monopoly floated on the markets in December too. It’s the biggest IPO (initial public offering) in history, raising $25.6 billion through selling 1.5% of the company. Shares surged 10% when they began trading. Despite the debut breaking records, it didn’t reach the $2 trillion valuation sought. Saudi Arabia has stated the IPO funds will be used to support the economy.
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