Weekly Digest - INVESTEC
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A roller-coaster start to the new year saw US equity markets taking heart on Friday from the combination of an unexpectedly strong US employment report, dovish comments from Federal Reserve and confirmation that Trade representatives from the US would fly to meet with Chinese counterparts in Beijing this week, in the first face-to-face meetings since a tariff truce was declared in December last year. This drove US and European markets up by around 3% across the board, with the more volatile and technology-heavy Nasdaq index rising by over 4% in dollars.
The strong positive reaction to good economic data in the US underlines the degree to which growth fears have come to dominate investor psychology. Those fears will not have been banished by a single data point and investors will remain highly sensitised to political developments (such as the US/ China trade situation and, more locally, to Brexit) in deciding on their risk appetites. Our position remains that the “growth scare” has been overdone and as the political landscape clears towards the end of this quarter, refocusing on a picture of solid global economic and corporate profit growth will support positive global equity investment returns in 2019.
Looking at politics: French riots continued over the weekend, in defiance of an increasingly hard-line taken by President Macron. The Brexit news flow was quiet over the weekend as the Parliamentary debate begins again on Wednesday, ahead of the scheduled vote on the Withdrawal Agreement on the 14th. In America, the Government shut-down over the disputed funding of Donald Trumps “Wall” is likely to continue, with no sign that Trumps flexibility on the material used to build it (it could be metal, not concrete) will assuage the Democrats desire to highlight that it is not Mexico who will pay for it, as Trump had promised. The signs are that US politics over the coming two years is likely to be akin to trench warfare, with the risk that confidence and growth could be caught in the cross-fire.