WeeklyWatch – A people’s government?

23 December 2019

Stock Take

Following in Trump’s footsteps

He might be able to quote Roman poets, but last week Boris Johnson seemed more interested in terms coined during the Trumpian era. The PM told his new Cabinet that they should see themselves as a “people’s government” and, as such, banned them from attending the glitzy World Economic Forum in Davos, in a bid to appeal to the Tory’s new working-class voters.

And, keeping his electoral word, in the Queen’s Speech Johnson stressed his commitment to prioritising a quick Brexit over a close continuing relationship with the EU. On Friday, he duly passed his Withdrawal Bill comfortably through parliament, just days after his election victory. In true Trumpian fashion, the Prime Minister, having blocked the pre-election publication of a report on Russian meddling in UK politics, sought to pile pressure on the media and judiciary. The BBC’s licence fee and the power to appoint judges will both be subject to government reviews.

On the whole, Johnson has had a positive first few months on markets (again, reminiscent of Trump’s experience). Although his resolve to not delay the transition period (and, in doing so, risk a no-deal Brexit), delivered sterling’s biggest single-day loss since November 2018, the currency remains comfortably up since Johnson came to power. Not only that – economic data last week came in positive for jobs, which reached their highest level since 1974, even as weekly real earnings remained below their pre-crisis peak.

A Christmas lift for stocks and shares

The FTSE 100 enjoyed a strong five days, and looks set to clock an exceptionally strong year. Indeed, stocks around the world have continued to enjoy their bull run this year, from the US (see ‘In The Picture’) to emerging markets: the S&P 500 in the US, CSI 300 in China and EURO STOXX 50 in Europe all rose last week, and are likewise set to end the decade on good form.

This reflects, in part, the continued growth in the global economy. China’s industrial data and retail sales picked up, and US Purchasing Managers’ Indices pointed to rising confidence, while sentiment remains strong after the progress made in US-China talks the previous week. In short, an imminent global recession is not widely anticipated, although there are weak spots, among them growth in Europe.

David Riley of BlueBay said:

“It may be some time until we witness another year in which gains are as impressive, given that we appear to have reached the limits of monetary easing in many jurisdictions and equity valuations are becoming stretched on the S&P. In many respects, 2019 has been a year in which macro fears have gradually melted away.”

The relatively buoyant market mood could yet mean more deals in the UK market, with Labour’s nationalisation plans now well and truly off the festive menu. One touted beneficiary is Deutsche Bahn (DB), owner of Arriva, a UK transport company. Arriva, which has its headquarters in Sunderland, might have been taken into public ownership under Labour plans. DB now plans to list Arriva on markets in 2020.

Oil and interest rates

Oil was another key feature of the week. The sector has been stable through the second half of the year, despite the largest supply outage in the industry’s history. Global oil traders continue to use Brent crude as one of their two leading price guides: last week it closed at $65 a barrel. The Brent oilfield in the North Sea, after which the benchmark is named, is no longer economically viable. Shell is currently decommissioning its four platforms at the site (the related tax breaks mean it has disclosed it paid no tax on £731 million of profits last year). Bad publicity it may be, but the FTSE 100’s largest listing has barely fallen this year.

Central banks offer another reason why many investors continue to feel optimistic about the outlook for 2020. Sweden’s Rijkbank, the world’s oldest central bank, finally ended five years of negative rates last week, but the Bank of England left rates on hold in anticipation of a post-election growth boost. It expects growth in the fourth quarter to rise “only marginally”, but still anticipates improved growth in 2020. Further afield, investors are banking on the ECB and Fed continuing to be cautious of rapid tightening.

Any rapid tightening would be a concern for emerging markets. Last week, the World Bank warned of a “towering” pile of emerging market (EM) debt, adding up to $55 trillion – the fastest such increase in modern history. That puts debt at 170% of EM GDP, while in China it is 255%. Unsurprisingly, China accounts for the lion’s share of the broader EM figure. So long as growth remains robust, this is thought to be manageable – unless rates track upwards at any speed.

Wealth Check

Andy Williams famously sang that Christmas is the ‘most wonderful time of the year’ in 1963. It’s also the most expensive time of the year, with UK consumers predicted to spend an average of £567 this holiday season.*

According to Deloitte, over half of this festive spending goes on gifts – with Brits spending twice as much as Continental European shoppers on presents for family and friends. The UK has a sweet tooth, with chocolates predicted to be the most purchased gift this year. Best make sure some of that chocolate is in your car, as more of us are Driving Home for Christmas (and, therefore, spending on travelling).

However, spending on socialising is expected to fall by over 7% compared to 2018, while UK consumers are anticipated to spend slightly less on food this year. More of us than ever are buying gifts online to put underneath the tree, with online sales rising to represent 44% of UK total spend this season. However, in-store purchases still take the lead, with supermarkets and retail parks expected to receive the greatest footfall as shoppers Step into Christmas. Plastic beats paper this year, with the debit card being the preferred method of payment in store (64%, compared with 53% cash).

We are more organised than Last Christmas with our shopping, leaving plenty of time to get on with the festive wrapping – over a third of us will have finished our shopping back in November!

* Deloitte Christmas Survey 2019

In the Picture

How did the world’s leading stock market perform throughout the decade? The Sharpe ratio measures stock market performance after adjusting for risk; in other words, it shows whether strong returns could have been achieved even if you reduced your risk exposure. On that basis, it’s been an exceptional decade on the S&P 500 – the best since the 1950s!

The Last Word

I stopped believing in Santa Claus when I was six. Mother took me to see him in a department store and he asked for my autograph.

Shirley Temple

We wish you a very Merry Christmas and a Happy New Year! The next WeeklyWatch will go out on 6th January 2020.

The information contained is correct as at the date of the article.

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

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 Wealth Advisory.

FTSE International Limited (“FTSE”) © FTSE 2019. “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 2019; all rights reserved.

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