Insight Multi-Asset update – week beginning 13 January, 2020


Market and economic review

Despite geopolitical tensions rising and a weak ISM print, 2020 has seen a strong start for risk assets. After the US-led assassination of Iranian Major General Qasem Soleimani, and the subsequent response from Iran, tensions seemed to calm with a speech from the US President Donald Trump. Whilst the market focused on these developments, PMI releases pointed towards continued stabilisation in the global economy.

In addition to the above, we received a steer from President Trump on how developments in the US-China trade war may progress from here. With the ‘Phase 1’ deal due to be signed this week, Trump said that ‘Phase Two’ negotiations should begin “right away”, although this was shortly followed by a claim that he may be able to negotiate a better deal after this year’s election has passed.

Against this backdrop, equities started the year strongly, with a notable outperformance of the largely cyclical semi-conductors sector, whilst global bond yields have broadly moved lower. In FX, emerging market currencies have been leading the way providing a sign that the markets view on the macroeconomic backdrop appears to be improving. Gold has had a very volatile start to the year – having peaked at a 7% increase during the height of the US-Iran tensions, it has since retraced those gains to be -3.6% year-to-date, as at the time of writing.

Tensions between the US and Iran increase, testing the markets’ ‘full-steam ahead’ start to the decade

The first real challenge for markets this decade came when news broke that a US airstrike had killed Major Qasem Soleimani, an Iranian military commander. In response, Iran’s supreme leader promised severe retaliation for those culpable, inciting fear amongst both markets and the general public of further escalation.

The reaction that followed on Tuesday was a series of missiles being fired at two US-Iraqi airbases. Both sides have stated they do not seek escalation of war and the response from Iran was, relative to the range of potential outcomes, relatively minor. The longevity and economic impact of this conflict appears to have somewhat faded given the rapid de-escalation we have seen since those events. However, it is clearly too early to presume this is the final chapter in the ongoing conflict between the US and Iran.

A weaker ISM than expected, followed by continued stabilisation in global PMIs and payrolls in line with expectations

On the data front, the decade began with a US ISM manufacturing print of 47.2 which undershot the expected 49.0. However, the non-manufacturing ISM print that followed was more constructive printing at 55 vs an expected 54.5, an increase from the previous month’s 53.9.

The market then looked to global PMIs, which were broadly positive, helping to bolster the view that the economy is making its way through a journey of stabilisation. The composite eurozone PMI was 50.9, 0.3pts above expectations, which was due to a shared improvement amongst both manufacturing and services. The strongest countries behind this uptick were Spain and Germany, whilst France printed in line with expectations and Italy slightly below. At a holistic level, we continue to monitor the impact of the poor manufacturing numbers experienced last year on the services component; however, it appears that this has mostly run its course.

Away from company surveys, the next potential hurdle for markets was the first US non-farm payrolls print of the year. This was released on Friday and caused no surprise for markets (at the time of writing) printing broadly in line with expectations, 145k vs 160k. This is 121k lower than the bumper 266k print in November; however, that number was boosted by the return of General Motors workers post their dispute over working conditions. Wage inflation printed mildly below expectation at 2.9% year-on-year and the unemployment rate remained stable at 3.5%.


There are a number of noteworthy data releases in the week ahead, particularly from China. We will get data on China’s December trade balance, and exports and imports, which will provide a sense of the toll the trade war has taken. We will also get Q4 GDP, and December retail sales and industrial production numbers. Away from China, the US releases its latest inflation and retail sales numbers, and we will see European industrial production and inflation numbers.

There are various central bank decisions, from the Central Bank of Turkey, South Africa Reserve Bank and the Bank of Korea. The Federal Reserve’s Beige Book and European Central Bank’s monetary policy account of its December meeting (President Christine Lagarde’s first) will also be released.

Away from data and political developments, the US earnings season kicks off in earnest this week. The first week is dominated by the big banks (Citi, JP Morgan, Wells Fargo, Goldman Sachs and Merrill Lynch). Expectations are for negative earnings-per-share growth of -1.5%, while revenue growth looks likely to remain positive (+3%), highlighting how margin pressure continues to drag on corporate profitability. Earnings growth was subdued for all of 2019 and thus management guidance for revenue growth in 2020 will likely dictate share price reaction. Lastly, as mentioned above, the signing of the long-awaited Phase One deal is due to take place this Wednesday.

By Adam Kibble, investment specialist

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