MARKET UPDATE: GLOBAL SHARES RISE AS US AND CHINA SIGN INITIAL TRADE DEAL

MARKET UPDATE: GLOBAL SHARES RISE AS US AND CHINA SIGN INITIAL TRADE DEAL

20th January 2020

LAST WEEK – KEY TAKEAWAYS

Trade: US and China sign initial deal

  • Global shares rose after US President Donald Trump and Chinese officials met in Washington DC to sign the first phase of a trade deal;
  • The US has cancelled some tariffs- taxes on products imported from abroad- and promised not to impose any new ones for the time being, while China committed to enhancing the protection of intellectual property (patents, trademarks and copyrights) and purchasing US$200 billion of US goods and services over the next two years.  
  • Omnis view: The conclusion of this initial trade deal should reduce uncertainty for the global economy in the short term. However, several of the most contentious issues remain unresolved and will need to be addressed in the next phase of negotiations (no date has been set yet), so the markets may face further turbulence in the future.    

UK: Interest rate cut looks likely

  • The pound weakened against the US dollar as figures showed UK economic growth slowed in November and consumer spending and inflation- the rate at which prices rise- fell in December. 
  • Omnis view: The relative weakness of the economic data released last week increases the likelihood that the Bank of England will cut interest rates at its next meeting at the end of January.

US: Trump planning more tax cuts

  • Larry Kudlow, one of the White House’s top economic advisors, announced that President Trump is planning to introduce a further round of tax cuts later in the year.
  • Omnis view: President Trump’s tax cuts in 2017 propelled the US economy, so he will be hoping the next round has a similar effect and boosts his chances of winning the upcoming presidential election.

China: Economy grows at slowest pace since 1990

  • China’s economy grew at 6.1% in the final quarter of 2019, below expectations and at its slowest pace in nearly 30 years[1].  
  • Omnis view: Trade tensions have evidently weighed on the Chinese economy, so the initial deal (outlined above) should offer some welcome respite. However, US tariffs remain on a wide range of the country’s goods, so Beijing has a strong incentive to continue with trade talks.

Corporate earnings: Strong start from US banks

  • JP Morgan Chase, Citigroup, Morgan Stanley and Bank of America beat profit forecasts in the fourth quarter of 2019, but Goldman Sachs and Wells Fargo fell short of expectations.
  • Omnis view: US banks set the tone for earnings season so these results are encouraging, but overall earnings among US companies are expected to fall by 2.1% in the fourth quarter according to research firm FactSet[2].  

LOOKING AHEAD - TALKING POINTS

Economic data

  • Tuesday- UK unemployment rate in November;
  • Friday- Japanese inflation rate in December.  

Monetary policy

  • Tuesday- Bank of Japan interest rate decision;
  • Thursday- European Central Bank interest rate decision.

Corporate earnings

  • Netflix is the first of the FAANG group of tech stocks to report earnings on Tuesday.  

Davos 2020

  • The annual meeting of the World Economic Forum at Davos in Switzerland begins on Tuesday.   

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This update reflects Omnis’ view at the time of writing and is subject to change.

The document is for informational purposes only and is not investment advice. We recommend you discuss any investment decisions with your Openwork financial adviser. Omnis is unable to provide investment advice. Every effort is made to ensure the accuracy of the information but no assurance or warranties are given.