Imperium Capital Publication

Weekly Digest – 21 January 2019

  • 2018 German growth at slowest pace in five years
  • UK Parliament rejected PM May’s EU divorce deal by 230 votes
  • Brent Crude continued its strong run, rallying 3.7%, ending the week at $62.7 per barrel
  • Gold ended the week 0.6% lower at 1282.7 per ounce

Viewpoint – January 2019

With broadening evidence of a global slowdown and both the Federal Reserve and European Central Bank continuing to tighten policy, investors took fright in December, resulting in steep falls across nearly all equity markets and a rush into safe haven assets. Having held up well during a difficult year for risk assets the key US market suffered a disastrous month, falling 9%, taking its return for the year into negative territory. The MSCI World index declined 8% for the month and 9% for the year, making this the worst year for markets since the financial crisis. Emerging markets also suffered but outperformed developed markets in December, the MSCI Emerging Markets index fell 3% in the month. That leaves emerging markets down 15% for the year but the nadir was reached in October and the big falls in markets in recent months have been concentrated in the US, Japan and Europe. Particularly steep falls came in the FAANGs stocks, which have fallen by around a third from their mid-year peaks.

Viewpoint – December 2018

Following the steep falls in October, a degree of stability returned to markets in November, but not without some considerable volatility during the month. Late in the month a more dovish speech from Federal Reserve Chairman Powell, together with hopes of some thawing of the US-China trade wars helped markets to post gains, led by emerging markets in Asia, up 5.2% in November, and the US, up 2.0%. This enabled the MSCI World Index to produce a gain of 1.1% and the MSCI Global emerging markets to gain 4.1% for the month.

The progressive removal of post crisis ultra-loose monetary policy, especially by the Fed, and the increasing evidence of a slowdown in global trade and growth, were the main drivers of markets. The US economy has remained buoyant, but the key housing sector is showing clear signs of slowing, with home sales down for the 6th consecutive month and other indicators pointing in the same direction. As the Fed has tightened policy the cost of finance has risen – the 30-year mortgage rates have increased by 1.5% over the past 2 years to around 5.0% – and has had a direct impact on costs to home buyers. Capital goods orders have also been softer, hurt by concerns about weaker growth globally.