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16 January 2020

16/01/2020

Market Data and Morning Chat

Morning Chat

Today China, tomorrow the world: So, a signed deal, as some would have it, a big, beautiful monster of a deal after a year and a half of combative language and various stops and starts. In fact, it’s an 86-page partial deal – very short by modern paperwork standards – which notes increased Chinese purchases of US manufacturing, energy, agricultural & seafood goods, elements tackling intellectual property right infringements, forced technology transfers & sales of counterfeit goods, and a halving of US tariffs.  Now we move onto phase two, as well as resolve the rumblings such as over EU-US trade and taxation.

A sputtering engine: While the US-China deal captivated headlines and lifted US markets, it also buried bad news. House Democrats delivered impeachment papers to the Senate (OK, not so buried) and the German Statistisches Bundesamt (Statistical Office) released their preliminary estimate of 2019 GDP growth. A not-unexpected 0.6% increase, the slowest annual pace for six years as sluggish international demand and 3.6% lower manufacturing output (as the wheels came off diesel sales) took their toll. Given Germany actually avoided a technical recession and they tend to have one every 4-5 years, it wasn’t disastrous, just lacking industrial and automotive drive.

Still earn-y days: Only days into the earnings season but so far, so … reasonable. Disappointingly, Wells Fargo was plagued by legislation costs while Goldmans (-0.1%) announced their $1.1billion legal bill. Meanwhile, Bank of America (-1.8%) while providing decent enough sales and profits, fluffed their report by offering an underwhelming forecast to investors. In all, good results marred by legal one-offs and unchallenging guidance. More positively, Blackrock (+2.2%) rallied on record fund inflows and Delta Air Line’s (+0.3%) earnings flew.  So decent bank profits excluding legal bills and solid trading numbers – let’s see if it continues with Morgan Stanley today.

Futures are pointing up following yesterday’s deal signing, but not too enthusiastically
Japanese railway projects are the engine for an 18% leap in machine orders – best since 2005
Sterling down 0.6% against the dollar this year as assumed probability of a rate cut now 60%
… and UK inflation slips to a three-year low 1.3% (why is it never low when rail fares are reset?)
… while German inflation is at a 5-month high 1.5% as food costs rise. Something to chew on.

Market Data

Selected Global Aggregates (Total returns, unhedged)    
MSCI AC World Equities (Local) up +0.37 (+0.03%) at 1,401 (YTD: 1.87%; 5YR: 63.7%)
MSCI AC World Equities (USD) up +15.29 (+0.15%) at 10,127 (YTD: 1.48%; 5YR: 61.9%)
Barclays Global Aggregate Bonds up +1.18 (+0.23%) at 512 (YTD: 0.04%; 5YR: 12.1%)
    
Selected Equity Indices (Capital returns)    
S&P 500 up +6.14 (+0.19%) at 3,289 (YTD: 1.81%; 5YR: 62.9%)    
NASDAQ up +7.37 (+0.08%) at 9,259 (YTD: 3.19%; 5YR: 99.8%)    
Euro STOXX 50 down -5.92 (-0.16%) at 3,769 (YTD: 0.64%; 5YR: 17.7%)    
FTSE 100 up +20.45 (+0.27%) at 7,643 (YTD: 1.33%; 5YR: 16.7%)    
CAC down -8.28 (-0.14%) at 6,033 (YTD: 0.91%; 5YR: 37.7%)    
DAX down -24.19 (-0.18%) at 13,432 (YTD: 1.38%; 5YR: 32.1%)    
Nikkei 225  up +16.55 (+0.07%) at 23,933 (YTD: 1.17%; 5YR: 41.9%)    
Hang Seng up +23.79 (+0.08%) at 28,797 (YTD: 2.16%; 5YR: 19.5%)    
MSCI Emerging Markets down -5.88 (-0.51%) at 1,138 (YTD: 2.09%; 5YR: 18.9%)    
    
Selected Government Bond Yields    
US 2 Year up +0.01 at 1.56 (began the year at 1.57; 5 years ago it was 0.48)    
US 10 Year up +0.01 at 1.79 (began the year at 1.92; 5 years ago it was 1.84)    
UK 10 Year down -0.07 at 0.65 (began the year at 0.82; 5 years ago it was 1.53)    
Germany 10 Year up +0.01 at -0.19 (began the year at -0.19; 5 years ago it was 0.45)    
France 10 Year up +0.01 at 0.06 (began the year at 0.12; 5 years ago it was 0.63)    
Italy 10 Year up +0.02 at 1.41 (began the year at 1.41; 5 years ago it was 1.66)    
Japan 10 Year down -0.01 at 0.00 (began the year at -0.02; 5 years ago it was 0.24)    
Barclays EM Basket down -0.02 at 4.18 (began the year at 4.27; 5 years ago it was 5.08)
    
Selected Currencies    
$ strengthened +0.0010 versus € (+0.09%) at 1.1148 ($: YTD: 0.72%; 5YR: 3.5%)    
€ weakened -0.0015 versus £ (+0.13%) at 1.1696 (€: YTD: 1.00%; 5YR: 12.2%)    
$ weakened -0.0005 versus £ (-0.04%) at 1.3038 ($: YTD: 1.70%; 5YR: 13.9%)    
¥ weakened -0.0900 versus $ (-0.08%) at 109.9800 (¥: YTD: 1.27%; 5YR: 6.9%)    
    
Selected Commodities    
Brent Crude ($/bbl) up +0.03 (+0.05%) at 64.43 (YTD: -3.00%; 5YR: 35.1%)    
WTI Crude ($/bbl) down -0.42 (-0.72%) at 57.81 (YTD: -5.32%; 5YR: 25.0%)    
Gold ($/ozt) down -0.26 (-0.02%) at 1553.79 (YTD: 2.03%; 5YR: 21.7%)    
Copper ($/mt) down -15.00 (-0.24%) at 6287.00 (YTD: 1.83%; 5YR: 11.7%)    
    
Data sourced from Bloomberg as of the close of last trading day.    
YTD = Year-to-date return; 5YR = five year return    

Nicholas Lowson Senior Portfolio Manager Kleinwort Hambros