Global equities had a volatile month with mixed performances but failed to recover from October’s heavy losses. Treasury yields moved lower during November as the oil price plunged and economic data pointed to slowing global growth. There was no shortage of market sensitive political news flow; the US-Sino trade dispute, US mid-term elections, Italy’s budget and Brexit remained hot topics during the month.
Trade rhetoric between the world’s two largest economies was closely watched ahead of the G20 summit in Argentina at the end of the month. Talks started positively in November with Trump describing a phone call with Xi Jinping as “long and very good”; but as we got closer to the G20 meeting, Trump’s and US officials’ became increasingly threatening. As it stands, the US will increase tariffs on China from 10% to 25% in January, something investors fear will hurt China and growth elsewhere in the world.
The US mid-term election outcome came as little surprise; a Democrat victory in the House and increased Republican majority in the Senate. The result diminished the Republican’s ability to boost their fiscal stimulus ahead of the 2020 Presidential elections although it is possible the Democrats will support increased infrastructure spending.
President Trump made clear during the month that he was most unhappy with the Fed’s interest rate increases and it was interesting to see at the end of the month Fed Chair Jay Powell making dovish comments during his speech at the New York Economics Club. His assertion that interest rates are “just below neutral…neither speeding up nor slowing down growth” fuelled a rally in stocks paring back earlier losses.
The European Commission will try to discipline Italy after it refused to revise its budget, calling on eurozone members to launch the “excessive deficit procedure” which could result in fines. Italian leaders responded with a conciliatory tone, Prime Minister Giuseppe Conte saying he was “confident that dialogue could lead to avoiding the procedure”. Markets responded very well, Italian sovereign bonds strongly outperformed and Italian stocks rallied. This does not help Brussels, which will rely on bond markets to help keep Italy and its budget in check.
Theresa May struggled in vain to progress with her Brexit Withdrawal Agreement. After much effort, she was able to get her Cabinet to agree and the European Council to endorse it, a humiliating exercise given large numbers of MPs pledged they would not support it in Parliament. At the same time Conservative MPs submitted to the backbencher committee 42 of the 48 letters required to trigger a vote of no-confidence in the Prime Minister. Despite the drama, sterling moved very little during the month although UK stocks had a difficult time.
Anna Haugaard, CFA