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Saturday 4th January 2020
Hi Friend,
What to expect in 2020 ...
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| We look at the options ...
No peace prize for the President, no trip to Stockholm any time soon. No flowers from Tehran, no vases from Pjongyang, Trump has set the tone for his tangent with the axis of evil. It doesn't bode well.
How do you like your foreign policy? Sunni side up with a hint of oil on the side. Troops withdrawn from Syria are moving in to Iraq. As the cavalry arrives, US citizens are urged to leave "by plane whilst possible, by any other means when not".
Iran has vowed "severe revenge" for the assassination of Major General Quasem Soleiman. Trump has explained this was action to stop a war. "We did not take action to start a war" the President explained. World leaders called for calm. Dominic Raab, called for de-escalation of tensions in the region. Yep that should do it.
Markets acted with cynical response. Defense stocks, Lockheed, Northrop and Raytheon moved higher. Oil prices moved up but not by much. Brent crude closed at $68 dollars per barrel. WTI closed up a few dollars more at $62.90. The Dow, S&P and Nasdaq surrendered early New Year gains. It had been a great start to the New Year following gains of around 30% in 2019.
In 2019, our major concerns were of Trump and Tariffs, Boris and Brexit. The President has promised to sign a deal with China by the 13th of January. The Prime Minister has promised a deal with the EU by the end of the year.
During the past year, world trade growth slowed to standstill, manufacturing output slumped. Output was damaged in North America, the Far East and Europe. The world needs a trade deal. It does not need a major geopolitical conflict played out in the Straits of Hormuz.
US growth slowed to around 2.3% in 2019. A further slow down is expected in 2020. The Fed has indicated no changes in rates during the year as a whole. No recession in sight. Election looms in the second half of the year. Following gains of 30% over the last twelve months, we expect little or no market action for the year as a whole.
It had looked pretty straight forward as the New Year fireworks exploded. A positive outlook overshadowed by trade tensions with China and Europe. Then down came the drone strike just to add to the uncertainty in the year ahead ...
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| High Street Losses Set to Double ...
In the New Year, Debenhams announced the closure of nineteen stores. A further thirty Debenhams units are planned to disappear from the high street this year.
Analysts expect some 7,000 shops will be closed in 2020 with the loss of 125,000 jobs. High street losses are set to double, according to the Centre for Retail Research. The rate of closure and job losses last year was 3,300 stores closed and over 62,000 jobs lost.
According to official data from the ONS, some 20% of retail transactions take place on line. Exclude food and the number increases to almost one in three transactions lost to the high street. Add price pressures, a margin squeeze, rising staff costs, rent and rates just compound the crisis. The sector faces a severe structural crisis which does not reflect a wider economic malaise.
Latest update for growth confirms of just 1% growth in the third quarter. For the year as a whole we expect growth of 1.3% in 2019 with similar growth an upside possibility this year. Want to know more? Don't miss our Brabners Quarterly Economics Updates in Manchester and Liverpool later this month.
Investment is unlikely to provide a stimulus to growth as our latest update explains. Output will remain muted, we expect manufacturing output to be just 0.5% in the year. Service sector growth will slow to just 1.2% with some hope for the construction sector, rising by 1.6%.
No change in base rates, as inflation remains below the 2% target. We assume Sterling will trade in the $1.30 - $1.35 band with Brent Crude trading around $65 dollars per barrel. The unemployment rate will hover around current levels. A continued deterioration in the trade deficit is expected.
We await details of government spending plans and targets for the period of parliament. An increase in annual debt to around 3% of GDP is expected if election promises are to be maintained. Dominic Cummings may be recruiting "weirdos and misfits" into Whitehall, let's hope not too many end up in Treasury ...
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| Fed rates set to stay on hold ...
The Fed minutes gave a clear indication base rates are likely to remain on hold during the year. Election purdah will inhibit any action during the second half of the year.
Inflation will remain below target, unemployment will remain at current levels, despite the slow down in the manufacturing sector. No need for Fed action despite pressure from the White House.
Ten year U.S gilts closed down five points at 1.83% this week. Markets are unsure about the shape of the yield curve by the end of the year. We expect little or no movement in real levels by close of period.
It has been a great year for U.S. markets. Nasdaq gains of 36% over the year overshadowed the performance of the Dow (23%) and the S&P (23%). The FTSE was a straggler in comparison, rising by just 12% compared to 25% gains in Germany and France.
Of course all gains were flattered by the setbacks in December 2018. Falls of over 10% presented a great buying opportunity. Evidence of over extension in the Nasdaq will moderate our New World enthusiasm in the medium term, we expect limited upside in the year ahead.
Our "Empires of the Cloud" Fund (see below) posted gains of almost 50% led by Apple, Facebook, Microsoft and Alibaba. Baidu our only setback, the omission of Adobe (up 47%) our only regret. Markets expect further upside as the race for Artificial Intelligence and Streaming intensifies.
That's all for this week, have a great weekend. We will be back with more news and updates next week. Wishing you a Happy and Prosperous New Year, Let's catch up soon,
John |
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