Weekly Digest - INVESTEC
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Last week was one where almost everything that could go right for financial markets did. Economic data were supportive for growth and the Conservative Party’s victory on Thursday removed the threat of more near-term Brexit disorder from both the UK and European economies. The icing on the cake was confirmation that President Trump had agreed to sign a Phase 1 trade agreement with China. As a result, the US has now cancelled the tariff increases scheduled for Sunday and has committed to rolling back tariffs from 15% to 7.5% on a further $120 billion tranche, although the 25% tariff on a remaining $250 billion worth will remain in place. The Chinese have agreed to purchase $200 billion more (relative to 2017) in goods and services from America over a two-year period, with agricultural goods a clear beneficiary. China has reportedly agreed to ban the practice of forcing foreign companies to transfer intellectual property to China as a pre-requisite to gain access. Phase 2 talks are said to begin immediately. Markets have taken this news relatively cautiously because the scope of the deal looks modest and it does not come into force until the end of January, leaving ample time for backtracking if either side feel the others’ behaviour contravenes the spirit of cooperation and respect (“face” is very important here to both sides).
Global equities rose by 1% in dollars over the course of the week, but fell by 0.4% in sterling as the pound rose to just under $1.34. At the time of writing, sterling is trading at $1.33. UK equities were, unsurprisingly, the best performers globally and rose by 1.8% over the course of the week. This was primarily driven by domestic exposure, with mid-caps, financials, real estate, retail and utilities all benefitting from the prospect of a Corbyn-free future.
Mainland Chinese shares rose by 0.6% today, supported by positive sentiment on US trade and good economic data. Chinese retail sales are reported to have grown by 8% in November, and Industrial Production by just over 6% – both figures were 0.5% higher than consensus forecasts.