Week from 9 to 15 December 2019
Investors remained cautious all week long due to the imminent UK election and the deadline for Sino-U.S. trade talks (Dec. 15). But they finally found two gifts under the Christmas tree late on Thursday.
Despite conflicting signals from both sides on the extent and possible terms of a “phase one” trade deal, Beijing and Washington have eventually reached an agreement which is expected to be fully executed in January. The United States reportedly has agreed to cut some tariffs on Chinese goods from 15% to 7.5% and cancel tariffs that could have been imposed on almost $160bn of Chinese imports (including $115bn worth of iPhones, laptops and other electronics) at the end of the week. In return, China will buy a range of American products and services for at least $200bn over the next two years. It has also suspended additional tariffs on some U.S. goods that were meant to be implemented on December 15 and has committed to crack down on patent infringement and ban the forced transfer of technology from U.S. companies.
In the UK election, Boris Johnson has won a strong majority after three years of deadlock. This overwhelming Conservative win seems to pave the way for the UK to leave the EU on January 31.
However, the picture is not as bright as we might think. First, this convincing success is just the first step in a long process. Remember that the European Parliament must ratify the deal and then the UK will have to negotiate its future relationship with the EU by the end of December 2020. Easier said than done!
Second, it was also an “exceptional night” for the Scottish National Party as it now holds 48 of the country’s 59 available seats, up from 35. Besides, Nicola Sturgeon said Boris Johnson did not have a mandate to take Scotland out of the EU and added it was a “strong endorsement” for Scotland having a choice of an alternative future (i.e. another independence referendum). Undoubtedly a thorn in the side of the Tory party.
For now, even if all the risks incurred have not been eliminated, stock markets welcomed the news but without euphoria. The S&P500 was up 0.73% WTD. The Dow Jones industrials added 0.43%. The Nasdaq Composite Index rose 0.91%. In Europe, the FTSE100 and the MSCI EMU gained 1.57% and 0.80% respectively. The best weekly performance came from emerging countries (MSCI EM up 3.62%), Japan (Nikkei up 2.86%) and China (Shanghai Composite up 1.91%).
Most of the S&P sectors were positive, tech stocks leading the pack (+1.96%), ahead of consumer discretionary (+1.07%) and financials (+1%). Real estate suffered the most (-2.56%).
As regards the debt market, the Federal Reserve kept interest rates unchanged, as expected, at its policy meeting on Wednesday. The U.S. 10-Year Treasury yield fell slightly from 1.84% to 1.82% over the week, even though it had shot up on Thursday (close to 1.9%). In fact, all the bond segments moved higher (IG corporate bonds: +0.29% in Europe and +0.74% in the U.S., high yield bonds: +0.47% in Europe and +0.73% in the U.S., emerging debt in local currencies: +1.08%).
Among safe haven assets, it is worth noting that gold moved up in spite of the trade deal ($1,475.60/Oz, +1.13% WTD). Lastly, crude oil continued its winning streak jumping above $60 a barrel (WTI futures: +1.47%).
Find the full report here: https://www.trackinsight.com/weekly-flow-report/2019-12-13/global