Global equity markets rallied in November as evidence gathered that we are at the beginning of a mini-cycle economic upturn, driven largely by the previous easing in monetary conditions.
The US market lead this rally. The outperformance appeared to be driven by the falling odds of Elizabeth Warren, and her market unfriendly policies, winning the Democratic party nomination for next year’s election. The late entrance of former New York city mayor Michael Bloomberg and the improved polling of Pete Buttigieg, the favoured candidate of Silicon Valley given his tech friendly views, has seen the chances of a centrist Democratic candidate winning the nomination spike dramatically which has coincided with the recent outperformance of US equities. There were also clearer signs that the US housing market remains healthy, which should allow the US economy to continue its record setting expansion.
The trade war with China remains the wild card, with the potential to challenge the economic growth recovery and disrupt the positive momentum in the equity market. There was a slight lull in developments in this regard in November with news flow likely pick up around the 15th December, the date the US is scheduled to put 15% tariffs on $160bn in Chinese consumer goods. We believe an extension to this deadline is most likely as Trump needs the economy to be in good shape heading into next year’s election and therefore a de-escalation of the trade tensions is in his interest.
Campaigning ahead of the December 12th General election dominated domestic headlines throughout the month. The initial YouGov MRP poll, the best model in the 2017 election, predicted a strong (68 seat) Conservative majority. Sterling strengthened on the news as, if accurate, this would make a messy, no-deal, Brexit even less likely as it would reduce the influence of the Eurosceptic ERP wing of the Tory party.
Our outlook for global equity markets is relatively optimistic. We expect a cyclical upturn in the global economy supported by the easy monetary conditions to spur an improvement in corporate profits and ultimately a continuation of the positive equity market momentum. The clouds of Brexit and the US China trade war are likely to remain a source of significant uncertainty for some time, however there is the opportunity for incrementally better news on both in December and into the new year.
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