The Financial Services Centre, Stoney Ground Kingstown, VC0100 SVG

Market commentary for week ending 2019-01-20

The rebound in the risk assets continues for the third week in 2019.  Both North American and European equity indexes registered sizeable gains. On the other side of the investment spectrum,  the yield on safe heaven government securities continues to fall. US large cap equity benchmark S&P 500 gained 2.87% overall. The financial sector was the main outperformer, gaining 6.12%.  Another sector which was able to gain more than the overall market was the industrial sector which increased by 3.30% on weekly basis. On the other end of the spectrum were utilities which were the only sector with negative performance, losing 0.18%.  If you remember well, we can observe a total opposite in the trend which we had last quarter of 2018 where utilities were gaining and the rest of the market was weak. Another notable outperformer was consumer staples which yielded only in 1.53 positive returns.


On the other side of the Atlantic, European equity benchmark EuroSTOXX 600 managed to increase by 2.25%. All of the sectors finished in the positive territory with best performing sectors automotive and construction, gaining 3.83% and 3.75% respectively. Healthcare and telecom sectors were underperforming, gaining only 0.72% and 0.42% respectively. With big picture overview, similar story as in the US, where defensives are underperforming and cyclicals outperforming.


It is not by a chance that the financial sector was one of the best performers around the world last week. The reporting season in the US has begun and the largest financial institutions reported their revenues for the last quarter. Overall the results were mixed, all big banks reported lower revenue in sales and trading of the fixed income instruments. Positive earnings per share revenue surprises were reported by Bank of America ($0.70 vs. $0.63), Goldman Sachs ($6.04 vs. $4.30), American Express ($2.32 vs. $1.80), and Citigroup (($1.64 vs. $1.55). On the other hand, negative surprises were delivered by JPMorgan Chase ($1.98 vs. $2.20) and Morgan Stanley ($0.73 vs. $0.89).


The Brexit saga continues.  The House of Commons strongly rejected and voted against the transition plan for Brexit which was proposed by the Prime Minister Theresa May. More than 200 votes were counted against, what means the worst defeat over a century. Following this defeat, Theresa May survived a vote of no confidence, therefore she continues the Brexit battle. She needs to find a find an agreement between the European Union and the British Parliament and the time is slowly running out. Therefore there are high chances that the current deadline of 29th March will be postponed.  Other, less likely options are Brexit without a deal, no Brexit at all or Brexit with a deal. The bottom line is that Brexit and the uncertainty which it brings has been causing problems mainly to the businesses. They have to make contingency planning and count with an extreme situation which may occur disturbing their going concern.


China reported its GDP figures for 2018 and it certainly caused headlines. The Chinese economy grew by 6.6% in 2018 which is the slowest pace in 28 years. The published figure was in line with the analyst’s expectations.  The growth may be the slowest but recall the difficulties the world was facing in the year 2018, especially the trade disputes which slowed the business activity. On the other point, comparing the growth with other developed countries, China is by far the leader. Other news coming from China were mainly positive: increased industrial output by 5.7% for December, retail sales rising by 8.2% December-on-year. For 2019, Chinese officials are projecting the growth further to slow down compared with 2018. Analysts are expecting that the Chinese government will support the economy with further policy changes which will yield in positive effects.


The US government shutdown continues and now, it is the longest one in history. The rating agency Standard and Poors calculated that the shutdown is costing American taxpayers more than the originally demanded funds for the Trump’s border wall with Mexico. An official from the Trump administration said around 0.1 percentage points are subtracted from economic growth each week of the shutdown. This statistics is coming in the very unfortunate time, the time when the majority of leading indicators for the economy are slowing down.


Brexit continues to be a hot topic and headline-maker for the next week as well. Another one will be ECB meeting on Thursday. The US economy will publish the data from the housing market and Germany’s ZEW index is coming out on Tuesday.

December 18, 2018 - adel