Market Update January 2020
Posted: 28th January 2020 | Share
By Sarah Ryman
Happy new year – or is it?
Mark Carney warned at the start of the year that the Bank of England could cut interest rates to boost the economy if weakness continues. Probability of a cut imminently remained low in the opening weeks of 2020 but it has now moved to over 60% probability of a cut at the next meeting at the end of January. Inflation unexpectedly fell to a three-year low in December which increased market sentiment that the Bank of England may cut rates sooner rather than later. The probability of a cut in in May is now up at 77% as I type.
Data released this month showed that the UK economy fared much worse than expected in November as it struggled with political uncertainty. GDP fell 0.30% according to the Office for National Statistics (ONS) undershooting analysts’ predictions of stagnation. The year-on-year growth figure of 0.60% was the worst reading since 2012 and retail sales were much lower in December than expected at 0.70% against 3.0% forecast.
The year-on-year growth figure of 0.60% was the worst reading since 2012 and retail sales were much lower in December than expected at 0.70% against 3.0% forecast.
Having said this – as the International Monetary Fund (IMF) downgrades global growth again they predict that the UK economy will grow at 1.4% in 2019 and 1.5% in 2020 which puts British growth expectations third out of the G7 countries for 2020. And, the labour market grew at its fastest rate in nearly a year in the three months to November according to the ONS. The unemployment rate stayed at 3.8% which is its lowest rate since the 1970s and the number of people in work rose by 208,000 which exceeded analysts’ expectations.
Spain has a new Prime Minister in Pedro Sanchez thanks to a wafer-thin margin (167-165) which will pave the way for a coalition between his Socialist party and the hard-left Podemos movement.
The Eurozone saw industrial output expand 0.20% in December which points to a slightly brighter end to 2019 after 12 months of slowing.
The market seems to have an appetite for longer dated debt as investors queue to lend to governments, betting that interest rates in the currency bloc will stay at rock bottom for the foreseeable future. Fund managers are banking on Christine Lagarde, the European central Bank president, sticking with the stimulus policies including negative interest rates and buying €20 billion in bonds a month as her predecessor Mario Draghi had. The new president has announced a major policy review at the Eurozone institution that could change its central aims. She said: “We will not leave any stone unturned and how we measure inflation is clearly something we need to look at.” Ms Lagarde also highlighted that climate change was an “important matter” to look at despite other members of the council feeling that this falls outside of the Bank’s remit.
This month saw the signing of the long-awaited phase one trade deal between China and the United States of America which should pause the damaging global trade war and result in lower tariffs along with China buying more American goods (if all goes to plan!).
The Dow Jones industrial average broke through the 29,000 mark for the first time as a report confirmed America’s jobs boom had continued in December.
The US’s enormous services sector outperformed expectations in December with the Institute for Supply Management (ISM) purchasing managers’ index (PMI) coming in at 55 from 53.9 the previous month. Unfortunately manufacturing has not picked up as impressively.
The Dow Jones industrial average broke through the 29,000 mark for the first time as a report confirmed
America’s jobs boom had continued in December. Non-farm payrolls expanded by 145,000 jobs last month as unemployment remained steady at a near 50-year low of 3.5%. Highs were not sustained at the end of the month as a viral outbreak from China found its way to US shores and the IMF lowering global growth forecasts made all three major US exchanges and the FTSE 100 retreat.
While December data showed an increase in Industrial Production and an improvement in the domestic economy thanks to trade tensions easing, GDP grew at its slowest pace in 29 years (at 6.1%) in 2019 which was lower than analyst expectations. In addition to China’s economy growing at the lowest rate since 1990 its birth rate also fell to a record low highlighting some of the challenges facing Beijing despite a truce in its trade war with the US.
Russia’s prime minister and its entire cabinet have quit their posts this month after President Vladimir Putin said that he will hold a referendum on sweeping constitutional changes that could allow him to keep power when his term ends in 2024. Whilst Putin has moved between president and prime minister positions over the past 20 years (a rein that now exceed that of Stalin) this move would facilitate greater control for the prime minister and weaken the powers of the president. In addition it would enable Putin to return to either prime minister again or head of the State council meaning that he would maintain his grip on Russia when he is legally required to step down as President in 2024.
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