Insight multi-asset update – week beginning 18 November, 2019


Market and economic review

Developments in the US-China trade war continued to dominate market performance, with equities and bonds reacting to contrasting news flow. As a whole, equity performance was broadly flat over the week. US equities were a small positive, whereas Spanish and Chinese bourses suffered due to more idiosyncratic political issues. In the former, a general election left parties unable to form a new government, and in the latter, performance suffered as tensions in Hong Kong remained elevated.

In fixed income, yields on global sovereign bonds fell having risen materially in the previous week, and both investment grade and high yield credit spreads widened slightly. In FX space, developed market currencies generally strengthened versus emerging market currencies. The weakest was the Chilean peso, which reached record lows vs the dollar amidst widespread unrest that has seen government support in rewriting the country’s constitution.

News flow on the US-China trade war continues to dictate market direction

After gaining momentum last week, the chance of a Phase One deal being signed seemed to lose traction when President Trump claimed that reports concerning the US rolling back tariffs were in fact “incorrect”. President Trump then spoke on Tuesday and the market was hoping for some sort of direction. However, the speech did not contain any major policy announcements, but instead was used to promote the economic record of the Trump administration.

As the week developed, it appears that the principal points standing in the way of a preliminary deal being signed are China wanting the US to commit to a proportional roll back of tariffs, rather than simply a delay; and the US wanting China to offer further concessions on intellectual property and forced technology transfer, and also agree to numerical targets in purchases of US agricultural products. It appears that these essential factors need resolving before a deal can be reached.

Last week also saw the Office of the United States Trade Representative report on possible tariffs on autos and auto parts. Now the report sits with President Trump, who will decide on whether or not sufficient progress has been made in negotiations to prevent the imposition of tariffs on European and Japanese autos.

Mixed growth data during the week

An array of disappointing data out of China was released last Thursday. Industrial production undershot expectations, printing at 4.7% vs 5.4% year-on-year (y/y). Retail sales declined to 7.2% y/y vs an expected 7.8% and fixed asset investment also disappointed. Shortly after these releases, the People’s Bank of China responded by offering CNY200bn of one-year loans to banks, in addition to the pre-planned CNY40bn also injected into the economy. Whilst in Asia, Australian unemployment data also disappointed.

The eurozone GDP release was better than expected with the y/y number printing at 1.2% vs a survey of 1.1%. Underneath the surface, German GDP numbers were stronger than expected. The quarter-on-quarter reading printed at 0.1% vs an expected -0.1%, which allowed Germany to avoid a technical recession. Whilst that avoidance is typically positive for markets, the very slight upward surprise does limit the chance of any fiscal stimulus from Germany. Finally in Europe, industrial production numbers were also slightly stronger than expected.

In the US, the October inflation report printed at 1.8% y/y, a slight uptick from the expected 1.7%. October retail sales rose 0.3%, vs an expected 0.2%. Comments from various Federal Reserve (Fed) speakers this week suggest a split amongst the committee, between those who favour a tilt towards easier policy, and the remaining members who tend to be more hawkish on the outlook for the US economy. Currently, market pricing suggests that the probability of interest rates being cut by July 2020 is over 50%.


Over the coming week, the main data releases will be the preliminary PMI numbers for November from a number of countries, including the US, Japan, France and Germany. With the latter avoiding a technical recession this week, it will be interesting to see if the PMI survey paints a similar picture.

From central banks, both the Fed and European Central Bank (ECB) will release minutes from their October monetary policy meetings, and we will hear from the new president of the ECB, Christine Lagarde, on Friday.

On the political front, there are further planned impeachment hearings in the US, as well as a Democratic primary debate. And finally in the UK, we look forward to the first televised debate for the UK general election.

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