Market Bulletin – Terminal Moments – Monday 12th November 2018

This week, US equities saw positive effects from the newly divided Congress. And the results of the midterm elections also boosted markets abroad. Meanwhile, in the UK, a Brexit deal continues to prove elusive.

Armistice Day 100

Last weekend, over 70 world leaders gathered in France to mark a hundred years since the First World War was ended on a railway carriage in Compiègne, some 50 miles north-east of Paris. Donald Trump, Vladimir Putin, Angela Merkel and dozens of other leaders from Europe and beyond joined Emmanuel Macron to honour those who lost their lives in the conflict, and the moment the armistice came into effect.

While the various manoeuvrings of markets pale in significance to such events, stocks are not immune. Restrictions introduced in 1915 ensured that securities in London could only be bought and sold in cash; however, the conflict itself unsurprisingly had more of a dampening effect; UK-listed companies declined sharply over the course of the war, hitting rock bottom in 1918.

The midterm split

A political driver came in the form of the US midterm elections last week, with the US Congress becoming split between a Democrat House of Representatives and a Republican Senate. Historically, markets have reacted favourably to America’s political house being divided, and this time was no different. Despite disappointing results from Apple dampening early-week trading, US equities rallied in response to the midterm result, with the S&P 500 and Dow Jones each boasting their largest post-midterm gains since 1992. The rally petered out on Friday, however, as investors absorbed the latest Federal Reserve guidance, which kept interest rates on hold, but pointed to “further gradual increases” ahead. That said, the S&P 500 still ended the week up 2%.

Elsewhere in the US, workers enjoyed the promising news that March this year was the first time in 17 years that there had been more unfilled US jobs than unemployed Americans. And last week, that happy gap stretched to more than a million. There are, however, some concerns that this further indicates that the US expansion rate is hitting its limits. Capital Economics stated: “We expect the US economy to cool as monetary tightening starts to bite and the boost from the fiscal stimulus fades.” For the moment, though, the US credit market is holding up well, which is often seen as a positive sign of growth and stock rises to come.

Tye Bousada of EdgePoint, co-manager of the St. James’s Place Global Growth fund, said: “For many investors, the perception of negatives is much more dramatic than the reality. Content that can tap into your fears gets your attention – and that’s the goal of many content creators. An overly dramatic world view, combined with investors’ tendency to think things are worse than they actually are, can be described as the gift that keeps on giving. Finding good investment ideas would be much harder in a world where investors tended to believe things were better than the reality.”

Q3 success

In the UK, the FTSE 100 benefited from the midterm results, and was also boosted by good results for both AstraZeneca and Coca-Cola HBC. The positive news doesn’t end there, as according to the latest figures from Fitch Solutions, the UK’s fiscal picture is expected to improve significantly over the next decade. Moreover, UK growth for the Q3 was confirmed at 0.6%, aided by exports and household expenditure. This is in contrast to the slow first two quarters of the year. However, it is worth noting that the UK economy has been heavily directed by key events this year. The growth came early in Q3 – influenced by the retail boost from the royal wedding and World Cup.

Johnson & Johnson

A Brexit deal continues to elude Theresa May. Despite achieving the unthinkable of uniting some staunch Remainers and Brexiteers, unfortunately they united against both her and her Brexit deal. Jo Johnson, a Remainer, resigned from the Cabinet, saying the deal meant now choosing between “vassalage and chaos”; his Brexiteer brother, Boris, was swift to agree. On Monday this week, the UK CEO of major UK employer, ThyssenKrupp, called the plan “a complete shambles”, before warning of job losses due to the Tories having “failed business”.

Working terminus?

Jo Johnson’s capacity to outright quit his job might indeed be envied by many UK women this week. As of Tuesday, the State Pension age for women will rise to 65, the same as for men. Despite becoming equal to men in this respect, inequality is still evident elsewhere. Women still receive lower pay than men at all career stages, restricting their ability not only to generate a full State Pension entitlement, but to pay into a private pension.

This change has happened much faster than originally promised, leading to complaints from several campaign groups. “The short notice changes have caused significant hardship to many women, especially as many did not know about the original plans to increase their pension age from 60,” said Ros Altmann, former Pensions Minister. Nevertheless, further increases are planned, starting with a rise in 2019-20 to 66 for men and women.

Ultimately, anyone now aged 30 or below is unlikely to receive their State Pension until the age of 70. The rise in the minimum age provides just one more reminder of the need to take personal responsibility for retirement finances and to seek advice.

QE deceleration?

Last week, the governor of the Bank of Japan Haruhiko Kuroda hinted that it would begin to wind down its programme of Quantitative Easing, through which it bought trillions of dollars’ worth of bonds to offer support to the market. This potential gradual reversal prompted concern for some investors; however, this was tempered by Kuroda also saying he didn’t expect to raise interest rates any time soon. The Nikkei 225 had a good week, bolstered by US midterms and oil entering a technical bear market – Japan is one of the world’s largest net oil importers.

China, meanwhile, enjoyed no such benefits from the midterms – the Shanghai Composite ended the week down after five straight sessions of losses. The bear market continued despite figures showing that Chinese exports to the US have rocketed, even under today’s stringent tariffs. Indeed, China’s trade surplus with the US extended in October, driven by both a fall in imports to China and a rise in exports to the US; the US accounts for a fifth of Chinese exports.

EdgePoint is a fund manager for St. James’s Place.

The information contained is correct as at the date of the article. The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place or Wellesley.

FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under licence. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

© S&P Dow Jones LLC 2018; all rights reserved.

Back to news