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16 January 2020
Video commentary for January 15th 2020
Eoin Treacy's view
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics discussed include: muted stock market response to trade deal, gold steady, Gilt yields compress, China eases, industrial metals firm, bull markets change the fundamentals.
U.S. and China Sign Phase One of Trade Deal
This article by Shawn Donnan, Josh Wingrove, and Saleha Mohsin for Bloomberg may be of interest to subscribers. Here is a section:
The U.S. and China signed what they’re billing as the first phase of a broader trade pact on Wednesday amid persistent questions over whether President Donald Trump’s efforts to rewrite the economic relationship with Beijing will ever go any further.
The deal commits China to do more to crack down on the theft of American technology and corporate secrets by its companies and state entities, while outlining a $200 billion spending spree to try to close its trade imbalance with the U.S. It also binds Beijing to avoiding currency manipulation to gain an advantage and includes an enforcement system to ensure promises are kept.
Eoin Treacy's view
The most important point about the trade deal is the stock market did not sell off immediately following the signing. Considering the rally that has been underway for the last three and half months there is clear risk of some consolidation on a buy the rumour to sell the news, but no evidence it has started just yet.
Decisions, decisions
Thanks to a subscriber for this report from UBS which may be of interest. Here is a section:
In the next 10 years, demographic changes will have major effects. Millennials, the largest US generation, will be approaching age 50, while the last of the baby boomers will all be at retirement age. Artificial intelligence and virtual reality are expected to be mainstream. Automation will impact the labor force. Environmental disruption will likely continue, and sustainable investing will be mainstream.
Investors see these “mega-trends”— an aging population, technology and automation, diminishing resources— creating opportunities for the future. In fact, seven in 10 want to take advantage of these trends to seek better returns.
As they look ahead, investors have an opportunity to ensure they are well positioned for the future—a future that will be here before we know it.
…In today’s challenging environment, investors seek various strategies to cope
To cope with this environment, 64% of investors are considering adding high quality stocks to their portfolios, while others would increase diversification and raise cash. Already, investors are holding 25% of their assets, on average, in cash. There is a clear connection between investor confidence and planning. Two-thirds of investors with a long-term plan in place are highly confident they will achieve their goals, compared to only 51% of investors without a plan. In addition, eight in 10 plan to discuss the impact of the US Presidential election with their advisors.
Eoin Treacy's view
A link to the full report is posted in the Subscriber's Area.
The “challenging environment” rhetoric, that has permeated just about all of the 2020 forecasts I have seen, is more a reflection of what people have in their portfolios rather than the background of markets.
Pound Struggles After Inflation, Saunders Spur BOE Rate-Cut Bets
This article by Anooja Debnath for Bloomberg may be of interest to subscribers. Here is a section:
The pound faltered and gilts rallied after inflation data backed up Bank of England policy maker Michael Saunders’ call for urgent stimulus to boost the U.K. economy.
Sterling weakened against the euro and 10-year government bond yields dropped to the lowest in seven weeks after the data fueled bets that the central bank will lower interest rates this year. Money markets are now fully pricing in a full 25-basis-point rate cut for May, compared to November a day ago, and see a 65% chance of a move this month.
Saunders’ view on the need for more accommodative policy comes just days after BOE Governor Mark Carney said Britain’s economic growth had slowed below potential and that the Monetary Policy Committee had discussed the merits of near-term stimulus.
“There is more room for easing expectations to rise should incoming data disappoint and that could keep short-term sterling downside risks intact,” said Manuel Oliveri, a currency strategist at Credit Agricole AG.
Eoin Treacy's view
The UK is determined to avoid the deflationary environment that has seen negative rates prevail in the Eurozone. That entails a willingness to let inflation run hot. Cutting interest rates now can be justified based on Brexit uncertainty as the end of the transition agreement is clearly within sight on December 1st.