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Nov2018 newsletter

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Read our Quantic Asset Management news report for the month of October 2018.
Find out more about our services https://www.quantic-am.com/en/

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Nov2018 newsletter

  1. 1. QUANTIC Monthly Market Review NOVEMBER 2018 A review of the performance of global stock and major markets over the last month, along with relevant insights from Quantic’s economists and investment professionals. G. Pavlides Building, 3rd Floor, Arch.Kyprianou 2 & Ayiou Andreou, 3601, Limassol, Cyprus. T: +357 25 262710 E: info@quantic-am.com W: quantic-m.com
  2. 2. The US economic data is still showing a solid trend. US growth looks set to slow throughout the course of 2019. The outcome of the US midterm elections was broadly as markets expected. The persistent political uncertainty and increasing friction within Europe has led to the further tightening of financial conditions. Signs of weakness persisted in Europe. Some of the weakness was related to Germany and Italy. Japan's economy, driven by exports, reduced more than expected in the third quarter. It was affected by natural disasters and a decline in exports, which adds to growing signs of weakness globally. In the UK, macro data and monetary policy expectations are highly conditional on the approval of the EU withdrawal agreement by parliament. Investors are focused on the Brexit negotiations, which have turned into an internal war between the Prime Minister and the UK parliament. A worse-than-expected Chinese slowdown and disruptions in global trade could pose risks to the entire region. US President Donald Trump and Chinese President Xi Jinping agreed to work together to resolve their trade disputes and put further tariffs on hold for 90 days. The temporary suspension of the trade war between China and the United States, established at the recent G20, increases the hopes of a year-end rally that could allow investors to recover part of the losses accumulated so far. US President Donald Trump and Chinese President Xi Jinping agreed to work together to resolve their trade disputes and put further tariffs on hold for 90 days. The global economic cycle has already started an evident slowdown, driven by Asia and Europe. This could also drag down the American economy, potentially starting from early next year. It is very likely that US growth will fall below 2% in 2019, due to an inability to change fiscal policy and a slowing global environment. After the rate hike scheduled for December 2018, the Federal Reserve (Fed) could seek to avoid further hikes in 2019. Mean- while, next year the European Central Bank (ECB) will end its QE programme, following a growth period in the European economy. From a macroeconomic point of view, 2019 could be characterized by negative events for the world economy. There is a risk that these events and potential changes to the global economic outlook could create a recession; this could potentially lead to a new financial crisis and give rise to a "Bear Market". Geopolitical events continue to weigh on investors’ risk. Global stock markets were unable to bounce back after the sizeable declines registered in October 2018. The Fed left rates unchanged as expected, with an 80% prob- ability of a rate hike in December 2018, after assessing that the economy is strong, and the labour market is healthy. Fed Chair Jerome Powell said that the central bank's benchmark interest rate is "just below" neutral level. US President Donald Trump has stepped up criticism lately of both the central bank and Powell. Powell said that the US economy continues to perform well at a growth rate of above 3 percent and with inflation contained around the Fed's 2 percent objective. Oil prices are in a bear market. Both Brent and WTI have declined more than 30% from 2018 highs. The OPEC Countries and their partners (Russia) are expected to cut production in an effort to help stabilize prices. Pressure from the US government to avoid high prices may limit the size of the cut and could inject some downside.
  3. 3. Oversupply concerns are poised to fade, with the potential OPEC cut, expiring Iranian sanction waivers, and production decreases from many US producers amid lower oil prices. A stabilization of the oil price should help global markets and especially emerging markets. Markets in oil-exporting countries could benefit from stabilizing prices, while a big bounce could hurt markets in importing countries. Political concerns in Europe have not vanished. Worries about Italy’s growing rift with the European Union (EU), and continued signs of trade tensions, are hurting economies throughout the region. The persistent political uncertainty and increasing friction within Europe has led to a tightening in financial conditions. Signs of weakness persisted in Europe. Some of the weakness was related to Germany (GDP in Europe's biggest economy fell 0.2, the first time since the first quarter of 2015) and Italy. The European Commission has rejected Italy's draft budget which says the deficit will rise to 2.4 percent of gross domestic product next year from 1.8 percent this year. The ECB is still expected to end its quantitative easing programme by year end, but the market is increasingly skeptical that the ECB will be able to lift interest rates in the second half of 2019 as per its current guidance. In the UK, macro data and monetary policy expectations are highly conditional on the approval of the EU withdrawal agreement by parliament. Investors are focused on the Brexit negotiations, which have turned into an internal war between the prime minister and the UK parliament. This event gave investors significant volatility on the majors’ currencies, especially on EUR and GBP. Prime Minister May said “there are three options: leave the European Union with a deal, the other two are that UK will leave without a deal or that UK have no Brexit at all”. Source: Bloomberg Terminal 2018
  4. 4. The world's second-largest economy has shown further signs of strain. The Chinese President has confirmed confidence in meeting China’s GDP growth target of around 6.5 percent this year. The Chinese government should slow its deleveraging drive and manage a bigger budget deficit next year to support the economy as downward pressure sharply increases. The slowing growth momentum stemming from structural changes in the economy and trade uncertainties call for a more "positive" fiscal policy in 2019 to ramp up infrastructure investment. Japanese firms expect slight domestic growth in 2019 and are more pessimistic about global growth due to the impact of the U.S.-China trade war and a planned sales tax hike. Prime Minister Shinzo Abe confirmed that the government will increase the consumption tax rate from 8% to 10% on October 1st 2019. Japan's economy, driven by exports, reduced more than expected in the third quarter, hit by natural disasters and a decline in exports. This adds to growing signs of weakness globally. Investment should get a boost from the 2020 Tokyo Olympics. Source: UK Institute for Government 2018
  5. 5. www.quantic-am.com RISK WARNING! Forex & CFDs are leveraged instruments and carry a high degree of risk to your capital and may not be suitable for all investors. The value of investments and the income from them can go down as well as up and you may not recover the amount of your original investment. Past performance is no guarantee of future success. Seek independent financial advice if necessary. If you are unsure of the risks involved in trading CFDs or Forex, or if you do not understand the risks, you should seek independent professional financial advice before making any investment decisions. Quantic is a trading name of AFX Capital Markets Ltd an investment firm, authorized and regulated by the Cyprus Securities Exchange Commission (CySEC), license no. 119/10 and registration no. 253014 Sophisticated Portfolio Management Strategies

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