Brexit has been the headline story for the last dozen or so market updates, but could an end now be in sight? With a decisive General Election result, meaning the UK will leave the European Union this month, it’s possible that some certainty will return.
Here’s your Q4 2019 investment update and a look back at the major economic stories of the past three months.
UK
The main news for investors was the Conservative Party winning an unexpectedly significant majority in December’s snap General Election. With Boris Johnson receiving a clear mandate, the gridlock that has hampered Parliament since 2016 has been removed, and the UK is now set to leave the European Union on 31st January.
The election result drove strong short-term gains for UK equities (particularly those that rely on the domestic British economy) and for sterling, although some of these gains were lost later in the month after the amended Withdrawal Agreement was passed by the Commons.
Now that the transition period will not be extended beyond December 2020, there are concerns that unrealistic expectations that a UK/EU trade deal will be agreed before the end of the year could still result in a ‘hard’ Brexit. In all probability, the UK is still facing the risk of another Brexit cliff-edge in December 2020, and this is likely to dampen the economy again in the second half of this year.
The Bank of England’s forecast for fourth-quarter gross domestic product growth was just 0.1%, slightly weaker than it had previously anticipated, as household spending and business investment stalled in the run-up to the election.
The Bank said that some company spending plans put on hold since the EU referendum could be reinstated by the end of 2021 but warned that heightened uncertainty over the future trade deal with the EU could continue to weigh on the economy.
However, in the short-term, quarter-on-quarter GDP growth should pick up to a level approaching 0.4% in Q1 and Q2 2020, exceeding this year’s average 0.2% pace.
Problems on the UK’s high streets continued this quarter, with Mothercare the latest well-known name to enter administration and put thousands of jobs at risk.
Card and gift retailer Clintons and photography experts Jessops were put through pre-pack administration in December while other failures included fashion retailer Bonmarché, Supercuts and popular online bookseller The Book People.
In more positive news, and after six months of uncertainty since the firm fell into liquidation in May, British Steel is set to be taken over by China’s Jingye Group. The group has plans to invest £1.2 billion in British Steel over the next decade – a move that could protect thousands of jobs.
Europe
According to predictions, the eurozone will grow by approximately 0.1% in the fourth quarter of 2019. This would mark a slowdown since the third quarter (0.2%) and the weakest quarterly economic expansion for almost six years.
France’s economy continues to perform resiliently, with even a major general strike not significantly adversely affecting economic activity. Experts predict growth of around 0.4% in the final three months of 2019.
Contraction risks continue to weigh on Germany, however, with the economy set to report a small GDP decline in Q4 2019.
The Polish economy performed particularly strongly in the final quarter of 2019, expanding by 3.9% to put full-year growth at 4.2%.
Asia
After months of escalation, the news that the US and China had agreed a ‘phase one’ trade deal was welcomed by the global economy.
This deal is set to reduce economic tensions between the two countries and a rolling back of protectionist policies. The two countries are, encouragingly, already working towards a ‘phase two’ deal.
The news should help to buoy manufacturing sentiment and could see an increase in global manufacturing activity in the first quarter of 2020.
The effect on markets was also positive, with the Chinese renminbi dropping back below the key psychological exchange rate of seven per US dollar. Both Asia ex-Japan and emerging market equities were among the strongest performers as 2019 drew to a close.
Ongoing protests in Hong Kong continued to make the news as they entered their seventh month. A landslide victory for pro-democracy campaigners in November’s election indicates the tensions aren’t going to disappear any time soon.
However, there was positive investment news coming out of Hong Kong as e-commerce site Alibaba raised £8.8 billion of shares through a secondary listing of share offers following its previous flotation in New York back in 2010. It was among the city’s biggest offerings of the last ten years.
With a slowing economy and trade tensions affecting Japan, prime minister Shinzo Abe has launched the country’s first fiscal stimulus since 2016 with a larger-than-expected 13.2 trillion-yen package to repair typhoon damage, upgrade infrastructure and invest in new technologies.
Described as a ‘15-month budget’, the spending package is one of the largest since the 2008/09 financial crisis as Japan seeks to fend off weakness in the global economy, drag from a recent rise in consumption tax and the risk of a slowdown after next summer’s Tokyo Olympics.
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If you need advice on any aspect of our Q4 2019 investment update, please get in touch. To find out what we can do for you, email admin@stonegatewealth.co.uk or call us on 01785 876222.
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