The combination of better-than-expected economic data, encouraging corporate earnings from U.S. banks, and the signing of the "phase-one" trade agreement between the U.S. and China helped push global equities higher this week, with U.S. stocks reaching new record highs.
The long-awaited "phase-one" trade agreement between the U.S. and China was formally signed this week, largely meeting expectations. Specific terms included commitments from China to increase purchases by $200 billion over the next two years ($78 billion of manufactured goods, $52 billion in energy, $32 billion of agricultural products, and $38 billion in services). Tariffs however remain on $360bn of Chinese imports, equating to roughly two thirds of total imports.
China reported a host of economic data, ahead of their upcoming Lunar New Year. Industrial production exceeded expectations, climbing 6.9% YoY in December. There was also better news on trade, as December exports rose 7.6% from the year before, the first such increase since July. Fourth-quarter GDP recorded growth of 6.0% year on year and 1.5% quarter on quarter, both numbers unchanged from the third quarter, pointing to a stabilising economy.
ECB December monetary policy minutes showed that policymakers took a more upbeat view on economic developments in their meeting but continued to see numerous risks that warrant ultra-easy monetary policy.
For the week, global equities were stronger. In the U.S., the Dow Jones (+1.82%), S&P 500 (+1.97%) and Nasdaq (+2.29%) were all positive, whilst the Euro Stoxx 50 (+0.49%), FTSE 100 (+1.14%) and Nikkei 225 (+0.80%) Indices were also stronger. The Shanghai Composite (-0.54%) Index was this week’s outlier.
Market Moves of the Week
Locally, the South African Reserve Bank’s (SARB) Monetary Policy Committee voted unanimously at the conclusion of its first meeting of 2020 to cut its key repo rate by 25 basis points to 6.25%. This was against the market’s expectation. The central bank also cut its GDP forecast for 2020 and 2021 to 1.2% and 1.6% respectively; and revised its inflation forecast significantly lower to 4.7% in 2020 and 4.6% in 2021.
The broader All-Share Index ended the week up 2.64%, led higher by the industrial (+4.34%) and resource (+2.69%) sectors. Financials (+0.10%) ended the week flat.
Chart of the Week
A large part of the 2020’s recovery thesis is based on the global monetary policy pivot that took place in 2019, which has created accommodative monetary policy conditions. Not many have noticed, but emerging market central banks have been particularly aggressive in easing policy (and also have the most traditional monetary policy ammunition available). Given that some emerging market cycle indicators have already begun to stabilise, the possibility for a cyclical upturn across emerging economies in the coming months and quarters has increased.