The end of 2018 saw some unseasonal gloom among the financial markets. Traders seemed to be convinced that the long recovery from the great recession had finally come to an end, and that a downturn was on the way.
However, things seemed to have changed very quickly in the first weeks of 2019.
Markets on the up?
In the US, the Nasdaq index jumped by more than 4% last week. The trigger seemed to be an upturn in employment which beat all predictions. coupled with an increase in wages.
Growing wages and a booming stock market usually mean that central banks will try and put the brakes on an economy in danger of overheating.
However, Jerome Powell, Chair of the US Federal Reserve gave a speech indicating that the Fed was aware that the market recovery had started to look uncertain, and as a result was unlikely to raise interest rates again in 2019. He went further, and suggested that the planned quantitative tightening (QT), by which the Fed had been seeking to reduce growth was no longer a certainty.
It appears the US markets were very happy to take the hint.
What about China?
Of course, the US is no longer the only big player on the world stage. China has seemed ready to overtake the US economy for some time – which has meant many intentional investors were looking nervously to the East as the new year came in.
The rocketlike growth of the world’s most populous nation was showing signs of falling back to Earth.
A slowdown in the Chinese economy was another factor suggesting recession was looming. An actual shrinkage in manufacturing output was being made worse by the trade war initiated by President Trump. It was a combination that helped unnerve financial markets.
Again, things seem to be turning round rapidly. The trade war meant increasing costs for American companies such as Apple, which manufacture in China. Apple made a downturn in sales predictions as a result, which rattled markets around the globe.
Both sides had reasons to talk, and the beginning of the week saw trade talks between the US and China. The enthusiasm on both sides might confirm the suspicion that President Trump’s hardline stance was only ever a negotiating bluff. Both sides seem confident of a positive outcome.
Domestically, China appears to be ready to stimulate its economy again, relaxing monetary policy and committing to internal infrastructure investment.
Closer to home
Of course, there is still the UK economy to worry about. The FTSE has seen some substantial falls over the past six months, and has a lot of ground to make up, even if it may have bounced back from the bottom.
However, like the US, the UK has also enjoyed some positive employment figures in recent months, although the manufacturing sector still needs some good news.
The major factor currently holding back the UK is, of course, Brexit, and the uncertainty about what form it will eventually take. With a pound that looks very good value and an economy ready to switch into high gear, it looks as though we may simply be waiting for a decision to take off the handbrake.
What about your own financial plans?
If you have the right investment strategy, you should still look forward to increasing your own wealth in 2019. But of course, it might be a sound tactic to get professional advice. At Continuum we would be very pleased to provide it.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.
The value of investments can fall as well as rise and you may get back less than you invested.
ccn.com – Here’s Why FED Gives Markets Green Light, Further Rate Hikes Unlikely – 06th January 2019
moneyweek.com – The US booms and China starts spending again: is the bear market over? – 7th January 2019
washingtonpost.com – Apple’s slowdown in China ripples through global financial markets – 3rd January 2019
tradingeconomics.com – United Kingdom Unemployment Rate
ons.gov.uk – The level and rate of UK unemployment measured by the Labour Force Survey (LFS), using the International Labour Organisation’s definition of unemployment. – 11th December 2018