Global stock markets continued to make gains in February, building on the strong recoveries seen in January. Investors’ concerns have been eased as progress continues to be made with the US-China trade negotiations and as a result of the more patient stance from the US Federal Reserve to further tightening of monetary policy together with the implementation of Chinese stimulus measures.
The S&P 500 (US) continues as the strongest major developed market in 2019. Headlines have been dominated by the US-China trade talks and although there has been an impasse on issues surrounding tariffs, intellectual property and Chinese state-led subsidies for technology companies, there was enough progress made to avert an increase in tariffs scheduled for the 1 March which helped to buoy markets. US economic data continues to be reasonably strong with unemployment remaining low by historical standards and wage growth rising, in conjunction with lower core inflation primarily due to weaker oil prices. This has been positive for the consumer and should continue to support economic growth. The S&P 500 produced a +7.83% total return in local currency terms year-to-date (to 4 March 2019).
UK equities continue to be impacted by uncertainty concerning ongoing Brexit negotiations. Weakness from more economically sensitive areas including banks, tobacco and mining was a feature of the final quarter of 2018, these sectors and the market as a whole have though seen a meaningful recovery as the prospect of a “no deal” scenario has seemingly receded although not fully discounted. Recent indicative votes in the House of Commons suggest that there is a majority in Parliament against a no deal scenario. The market is taking the view that it is more probable that there is an extension to the Article 50 process, in lieu of a no deal scenario. Sterling continues to act as a barometer for the progress of the negotiations, and rose by 1.1% against the dollar over February.
In 2018 emerging market equities were weighed down by fears of a slowdown in the pace of Chinese economic and credit growth, the vulnerability of some economies to tighter US monetary policy and concerns about the potential impact of global trade tensions. Developing economies reliant on external funding find the tightening of US monetary policy challenging, consequently the Federal Reserve’s decision in January to leave rates unchanged, the softer rhetoric between the US and China and introduction of Chinese stimulus measures has eased pressure aiding in a partial recovery. Recent improvements are of course positive although these markets continue to be sensitive to a number of factors, including a potential slowdown in global growth.
European markets have also felt the impact of the trade war concerns and similarly the slowdown in China’s economic growth rate. Signs of weakening momentum continued as manufacturing activity slowed, consumer confidence did however increase for the second consecutive month. The European Central Bank (ECB) has kept it’s guidance on monetary policy unchanged, with the programme of quantitative easing having halted at the end of 2018 and interest rate rises expected by the end of 2019, although the market is placing a lower probability on the latter.
Markets remain sensitive to political risk and due consideration should be given to the ongoing uncertainties at this late stage of the economic cycle. Together with mixed economic data the economic and market outlook is less clear, albeit markets have demonstrated notable progress so far in 2019. A diversified approach and exposure to active management certainly remain appropriate for most investors.
|Market Performance||2019 Year to Date Returns|
|FTSE World ex-UK||+6.99%|
|FTSE Actuaries UK Conventional Gilt All Stocks||+0.35%|
|FTSE Actuaries UK Index-Linked All Stocks||+0.37%|
Performance to 4 March 2019
|Bank of England Base Rate||0.75%|
|Inflation (Retail Prices Index)*||2.50%|