02 December 2019
S&P 500 clocks new record high
American shoppers look set to deliver the usual pre-Christmas boost to sales – last week volatility across US stocks fell to a one-year low and the S&P 500 clocked a new record high.
Not only that – new figures indicated that household spending picked up in October, and that consumer spending has been driving US GDP growth far more than in the previous few quarters. A key measure will be the data for Cyber Monday (today), when US consumers are forecast to spend $9.4 billion…and when the US shopper duly delivers, the financial world breathes a collective sigh of relief.
Indeed, it seems that there are plenty of deals to be had just now. Last week the Abu Dhabi government agreed the sale of a 10% stake in Manchester City Football Club to Silver Lake, in a deal that values the Premiership title holders at $4.8 billion, making City the most expensive sports club in the world. Meanwhile, LVMH secured the purchase of Tiffany & Co., yet that was just one among a spate of deals that day; deals that added up to $70 billion!
Financial group versus music royalty
Taylor Swift wasn’t talking about the stock market when she wrote the lyrics: “Well, I don’t know how it gets better than this”, but last week, she could well have been.
The line is currently an ironic edge to her title as the ‘Artist of the Decade’, presented to her at the 2019 American Music Awards last week. Despite the accolade, the singer is in the curious position of trying to persuade Carlyle Group to use its position to enable her to perform her own back catalogue: not the kind of politics the US financial group might have imagined getting embroiled in when it helped sell Swift’s former record label to manager Scooter Braun.
Amid this musical turmoil, global tensions largely played to the political tune last week. After the Hong Kong Human Rights and Democracy Act easily passed through both houses of the US Congress, Donald Trump was left with little choice but to sign off on a shift in the US’s treatment of Hong Kong.
The bill obliges the White House to verify annually that the legal and administrative systems in Hong Kong are still distinct enough from those of mainland China to ensure separate treatment in both customs and economic arrangements. If not, there is a stick in the form of sanctions, although it is highly doubtful that Donald Trump would ever wave it. Still, the move is hardly likely to please Beijing at a sensitive point in trade negotiations.
George Luckraft of AXA Investment Managers, Manager of the St. James’s Place Diversified Income fund, said:
“China might play a longer-term game than Trump wants, which might provide an unpleasant surprise for markets in the coming months. That said, it might be dangerous as investors get more optimistic that a deal is going to be done. But legacy is Trump’s priority and he is likely to ultimately want a deal.”
Stock indices worldwide were torn over which direction to take, as hopes of continued economic growth were weighed against ongoing US-China trade tensions. Two of the world’s most trade-sensitive major economies were certainly feeling the heat, albeit for a range of reasons. Japan’s recent tax rise and super-typhoon sparked the largest monthly drop in retail sales the country has suffered in recent years while, in the eurozone, business climate and sentiment indicators were increasingly negative. Such frail indicators can raise alarm bells for some investors.
Election and Brexit rules UK stocks
On home soil, while stocks were partially influenced by global developments (the FTSE 100 posted a four-month high midweek), the focus was on election season and Brexit.
It was not just polls that suggested momentum is with the Conservatives – they were also helped by some of the economic statistics. The European Commission’s Economic Sentiment Indictor (ESI) pointed to stabilisation, while a mild improvement in consumer confidence should surely help the Tory cause. “Despite the growing likelihood of a Conservative majority, sterling has only edged higher in recent weeks,” said Capital Economics last week. “We think that the pound could rise further if the party wins a majority, but that its stance on Brexit limits the upside for now.”
In UK corporate news: De La Rue, the banknote manufacturer, halted its dividend, and the impact was quickly felt on the share price; Uber lost its London licence; and Npower announced it would be cutting 4,500 jobs. But amid the negative headlines, some investors will still see opportunities.