Monthly Market Review
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.
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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
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.
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
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
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
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