Weekly Market Update: Equities sell off on renewed trade war fears

Mon 10 Dec 2018

Read our full Market Update Week 49

Market Update

US equities sold off significantly last week, down -4.4% in Sterling terms, as trade war concerns weighed on American stocks, erasing the gains made in the previous week. Global equities were down -3.5% in Sterling terms, with all sectors apart from utilities experiencing negative returns. Emerging Market and Japanese equities posted losses of -1.2% and -1.8% in Sterling respectively. European equities sold off -2.4%, with the German DAX in bear market territory. UK equities were down on the week too, falling -2.9%. US 10Y Treasury yields traded throughout the week below the 3% level, closing lower at 2.845% as capital flowed into safe haven assets. Parts of the US yield curve inverted, although this was at the short end and not necessarily a reliable sign of a coming recession. Markets are now pricing in a “Fed pause” and seriously doubt the current forward guidance provided in light of a more “data driven” Fed and current conditions. Commodities performed well last as Gold returned +2.3% and Oil rallied +3.5% in Sterling terms.

CIO Analysis

It may be no exaggeration to say that this, the 50th week of 2018, could be the most important one for the year. As far as markets are concerned, the failure of the S&P 500 to break through some key technical levels, in a period where it traditionally rallies, could dampen trading expectations for the remainder of a year where “buying the dip”, the universal sign of a bull market, did not work. It is also crunch time for British risk assets as Brexit is now crossing the threshold from theory into reality. Change is inevitable and we feel that, whatever the case going forward, the only impossibility is a return to the pre-referendum status quo. Should the Brexit vote go ahead as planned, it will be trial-by-fire for an imperfect compromise. If the bill fails, all options are open. Investors with international portfolios have less to worry about, as there have been few signs of contagion. Those exposed to UK large caps could see some volatility. Investors in UK bonds could experience higher levels of volatility, especially those with exposure to corporate issues. Investors who are adequately diversified and maintain a longer term horizon should be better positioned to weather the worst outcomes of Brexit.

David Baker, CIO