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LCP Investment Summary December 2019

Posted on 2 January, 2020 by Administrator

LCP Investment Summary December 2019

Equities

Global equity markets rose 1.6% (in € terms) in December, and 30.1% over 2019. Some global markets continued to hit market highs with investors again taking their lead during the month from the positive progress made in the U.S./China trade talks. President Trump announced at month-end that the ‘very large and comprehensive’ Phase 1 deal would be signed on 15th January and that he will travel to China at a later time to start on Phase Two. Investors were also encouraged by economic data which, although mixed at times, seemed to imply that the global economy should grow at a steady pace over 2020, further allaying fears of a possible recession.

Bonds

Longer-dated Eurozone bond prices fell 3.5% in December, with the yield on the AAA Eurozone 15+ Year Index rising to 0.24% by month-end. The Euro Broad Sovereign 10+ Year Index fell by 2.2% with its yield rising to 0.90%. Yields continued their rise of the previous three months over the optimism around the U.S./Chinese trade talks and the improving global growth outlook.

Sample DC Schemes

Two of our sample DC Strategies fell in December due to the performance of longerdated AAA-rated Eurozone government bonds. 

 

Review of Markets in Q4 2019

Global equities rose 5.9% (in € terms) in Q4 ’19, with investor sentiment primarily dictated by the positive developments concerning the U.S./China trade war and signs of stabilisation in the global economy. Longer-dated Eurozone AAA-rated bond prices fell 7.5% (and yields rose) over the quarter due to the optimism around the U.S./Chinese trade talks and the improving global growth outlook.

Equity Performance

October:  Global equity markets rose 0.4% (in € terms), with markets down early in the month as economic data in both Europe and the U.S. again disappointed. However investors reacted positively by mid-month with the announcement of a ‘substantial, phase one’ trade deal between the U.S. and China which included Chinese promises to purchase more U.S. agricultural products while the U.S. cancelled planned tariff increases on Chinese imports which were due to start on 15th October. But conflicting reports again on the future progress of talks tempered this enthusiasm somewhat by month-end. Investors were also buoyed by receding fears of a ‘no-deal’ Brexit as well as another, and possibly final, cut in U.S. interest rates with Fed Chair Jerome Powell saying: ‘There's plenty of risk left, but I have to say the risks seem to have subsided’. However, some investors are expecting further cuts in 2020, possibly in February. Q3 company earnings were generally well received with big names like Apple, Intel, Volkswagen and Facebook announcing positive news.

November:  Global equity markets rose 3.8% (in € terms) with markets in the U.S. continuing to hit record highs as many investors looked to the positives of the various trade, economic and earnings updates. Although there was still no specific details announced of the ‘phase one’ trade deal between the U.S. and China, optimism remained high that a deal was imminent despite both sides, as usual, giving conflicting signals including a new U.S. bill supporting the Hong Kong protestors near month end. European markets were also well up, mirroring the positive tone seen in the U.S. Global economic data was mixed but generally solid employment data in both the U.S. and Germany reassured investors. The minutes from the U.S. Federal Reserve’s October meeting suggested that they were unlikely to cut rates again unless the economy showed signs of weakening.

December:  Global equity markets rose 1.6% (in € terms) as some global markets continued to hit market highs with investors again taking their lead during the month from the positive progress made in the U.S./China trade talks. President Trump announced at month-end that the ‘very large and comprehensive’ Phase 1 deal would be signed on 15th January and that he will travel to China at a later time to start on Phase Two. Investors were also encouraged by economic data which, although mixed at times, seemed to imply that the global economy should grow at a steady pace over 2020, further allaying fears of a possible recession.

Bond Performance

Eurozone bond yields fell sharply late in October after U.S. interest rates were cut and on doubts about the U.S./China trade negotiations, which saw investors seek safe-haven assets. But despite these late falls, bond yields rose significantly over the month mainly on increased expectations that the U.K. will avoid a ‘no-deal’ exit from the EU. Yields rose strongly by mid-month in November on the back of positive global trade and economic news.

They then fell back following some conflicting statements from both the U.S. and China on trade issues but picked up again at month end following the release of stronger-than-expected Eurozone inflation. Yields then continued their rise during December over the optimism around the U.S./Chinese trade talks and the improving global growth outlook.

 

 

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