Monday 21 October, 2019
Global Market View
While the global markets in September finished up 2.3%, it was not all smooth sailing. In fact, the markets seemed to be tossed from one major event to another throughout the month. September started off well with positive news on the trade front, as the US and China agreed to resume talks in October and China granted tariff waivers to a small number of US exports. During the second week of September the markets saw a very sharp dramatic rotation away from momentum, growth and quality names toward cyclical value names. The rotation was abruptly interrupted when news came out that Saudi Arabia’s Aramco oil fields were bombed in a drone strike, halving their production and disrupting roughly 5% of the world’s supplies. Oil prices initially spiked 15% as the US claimed Iran was behind the strike despite Yemen rebels claiming responsibility. Oil prices gradually fell throughout the rest of the month as political tensions cooled and Aramco was able to restore oil production sooner than expected.
On 18th September the US Federal Reserve cut its key policy interest rate by 25 basis points to between 1.75% and 2.00%. While the cut was expected, the messaging was not as dovish as hoped for and the committee remains split on where to take interest rates from here, although the Fed chair, Jerome Powell, stated that the Fed would stop cutting rates to sustain expansion only “when we think we’ve done enough”.
Brexit continued to make headlines during September as the UK Supreme Court ruled that Prime Minister Boris Johnson had acted unlawfully when he suspended Parliament in his drive to pull Britain out of the European Union. The British Pound rose while the FTSE 100 fell on the back of the announcement. While there remains much uncertainty about the timescale of Brexit, Johnson continues to push for an exit by 31st October, with or without a deal.
The geopolitical drama intensified over the month when US Speaker of the House Nancy Pelosi initiated an impeachment inquiry against President Trump on 24th September following the release of a whistleblowing complaint accusing Trump of violating the Constitution by seeking help from a foreign leader (Ukraine) to damage a political opponent (Joe Biden). The markets took the news in their stride as, although impeachment is very possible, removing Trump from office would require an unlikely two-thirds supermajority vote by the Republican-controlled Senate. Having a larger impact on the market was the surge in the polls of Elizabeth Warren, as Joe Biden was wrapped up in the Ukraine scandal. We are keeping a close eye on her standing. Senator Warren has historically been a supporter of increased regulation on the healthcare, financials, big-tech and energy sectors and share price performance of those sectors have reacted negatively as a result of her ascension.
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