Weekly Market Update: Global markets rally amid Brexit uncertainty

Mon 09 Sep 2019

Read our full Market Update Week 36

Market Update

Global stocks were up last week, gaining +1.9% in local terms and +0.9% in Sterling terms as the Pound appreciated after the House of Lords passed a bill giving parliament the power to, in theory, prevent a no-deal Brexit. In addition to this, the Prime Minister tried to call for an election using the fixed term parliament act, but failed to achieve the support needed. Sterling gained +1.0% versus the Dollar and +1.6% versus the Japanese Yen. UK, US and European stocks were up +1.2%, 0.8% and 1.6% respectively. Emerging market stocks led the rally, up +1.4% in Sterling terms, driven by Samsung and Tencent which were both up over 5% for the week. Globally, the best performing sectors were consumer discretionary and IT, while utilities and healthcare stocks lagged the index. UK 10Y Gilt yields traded slightly higher, closing the week at 0.493%,  and US 10Y Treasury yields fell -3.1bps to 1.466%. In US Dollar terms Gold fell -1.9%, and Oil gained +1.6%.

CIO Analysis

In April 2001 the then Chair of the Federal Reserve Board Alan Greenspan gave a speech to the Bond Market Association. The subject was how markets might cope in a world without US sovereign debt issuance, and where outstanding government debt had been eliminated through tax surpluses brought about courtesy of economic and productivity growth. Such a notion now seems preposterous. Instead we find ourselves in a position where markets look again to Central Banks for easier monetary policy, but now central bankers look to governments and call for looser fiscal policy. Indeed, following Christine Lagarde’s first public appearance as president elect of the ECB where she proclaimed that “central banks are not the only game in town” in a plea for European countries to cooperate towards fiscal stimulus, the weekend saw France’s finance minister call upon Germany to loosen their fiscal purse strings. Here in the UK new Chancellor Sajid Javid produced a spending review which seemed to ignore budget deficit limits, with a hint that the rules would be reviewed anyway before there was any technical breach. Across the Atlantic, President Trump is of course ahead of the game when it comes to fiscal stimulus and doubtless the US rate of growth will play a part in European politicians’ thinking. This higher US growth has not been sufficient to wean the economy off ultra-loose monetary policy, but perhaps central bankers are simply weary (or indeed wary in the case of those about to take up post) of being regarded as the sole solution to markets’ woes. Or is it a simple recognition that ultra loose monetary policy has failed to kick start the economy despite numerous attempts across many geographies.  Whatever the reasoning, debt is cheap, let’s have some more.

–David Baker, CIO