US and China to reach agreement?

It has been a tough week for equity markets, which were down some 2%. Bonds on the other hand helped portfolios as yields dropped 10 basis points in the US.

The narrative, until Friday morning, was that nothing good happened with respect to the three big market moving topics, which investors are following closely. As a result of this markets were a little weaker. However, the move to the downside accelerated as trade data from China was published, which showed that exports were down sharply in February. Although Goldman Sachs had been forecasting that exports would be down by 20% no one else had and hence the number was taken by markets as a shocker. Combining this piece of information with the fact that earlier in the week some below consensus data on China services was published makes this a bad week for China data and shows us that the Chinese authorities may need to do more to get the economy moving again.

US - China tensions thawing

Turning to trade, no major announcements were made this week but investors know tensions between the US and China have improved in recent weeks with an open–ended extension of the previous 1st March deadline for the step-up in the tariff rate from 10% to 25%. It is likely that the US and China will reach some type of agreement on trade later in March when Presidents Trump and Xi are expected to meet.

High Noon for Brexit

In the UK, this week has been quite dramatic and the country is now entering the high noon scene of the Brexit drama. If Theresa May’s deal does not pass in the House of Commons, it will be followed by a vote on taking “no deal” off the table. The Daily Mail reported that Theresa May will be allowing Conservative MP’s a free vote on this. If that turns out to be true then even if her deal does not pass one can expect MP’s to vote to take “no-deal” off the table. Although that could look messy, this will be the beginning of a move towards asking the EU for an extension while still trying to get a version of May’s deal passed at a later date. However, these views come with the normal caveats that many outcomes are still possible and even a no-deal still has a 10% probability of happening.

Two to watch

Two things are worth noting. The first is the Lyft IPO process in the US. Lyft is the major competitor to Uber and it is seeking a $20-25bn valuation. Depending on where it prices and the first few days of trading, the IPO will give investors a glimpse into the health of demand for the tech sector after a barrage of negative headlines on privacy related matters. The second thing is a report in the FT that although global stock markets have been enjoying their best start to the year in almost three decades, many private investors who manage their own money have missed out on this rally which by some has been called the “flowless recovery”. This is one of the reasons discretionary fund management makes sense and also why investors should always have a weighting to equities since markets can move very quickly and not being invested causes one to miss the rallies.

© 2019 GWM