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Christmas comes early – global equity markets hit all-time highs

 

  • Global equity markets rally on the back of the US-China trade war entering a period of ceasefire.
  • UK election results also support the UK equity market. Improved clarity of political direction brings the market back onto the radar of international investors.
  • There is a global theme to the equity rally, with Asian and Australian indices showing strength.
  • The lack of support from other assets though suggests that the surge may not have as much support behind it as some believe.

 

Monday saw a range of global equity markets hit all-time highs. The inspiration appears to have been the positive news on Friday relating to the US-China ‘phase one’ trade deal and the UK election result. There wasn’t much new information shared on either topic on Monday. The equity bulls were inspired to drive the markets higher just by reading Friday’s headlines once again.

UK100 (TVX:UKX) – 27th November-17th December

Source: TradingView

UK100 (TVX:UKX) – Five-minute candle – 27th November-17th December

Source: TradingView

The UK FTSE 100 index posted its biggest daily gain in almost a year. Shares gained 2.6% from Friday’s closing prices as the index reached its highest price level in four months. The UK business community appears to be taking comfort from the results of the UK general election, which was held on Thursday. Polling had suggested that the result could be tight and even lead to a hung parliament, so the commanding majority for Boris Johnson’s Conservative government is being seen as opening the door to more efficient political operations. The party’s manifesto was weighted relatively heavily towards ‘tax and spend.’ Sentiment though appears to be that the direction of travel is not as important as the idea that after several turgid years, the brakes are finally let off.

Will Hobbs, chief investment officer for Barclays Investment Solutions, was discussing the UK economy when he saidthatit had“laboured under a black cloud of UK related political and economic uncertainty for a few years.” He added:

“Following the recent election results, and a clearer path out of the EU in sight, this cloud seems to have dissipated a little.”

Source: BBC

The FTSE 250 index contains the shares of firms that are more UK-specific. It’s considered to more accurately reflect the UK economy than the FTSE 100, which contains multi-nationals with global business interests. The FTSE 250 was up 1.8%. A welcome Boris-dividend for investors but a move not of the same size as that of the FTSE 100. UK shares were also being supported by jobs data released on Tuesday that showed that unemployment fell to its lowest level since January 1975 in the three months to October.

The number of people out of work fell by 13,000 to 1.281 million and the employment rate rose to an all-time high of 76.2%.

As Hobbs pointed out, the UK election is a welcome addition to the Christmas party mood, but compared to the US-China trade deal, the UK result is a mere canape:

“For the world's investors, there have been more important developments to digest, namely the progress made towards a phase 1 trade deal between the US and China.”

Source: BBC

Offering confirmation that the trade deal was the main driver of the equity rally, the three big US indices all posted record highs on Monday.

NASDAQ, Dow 30 and SPX 500 – Five-day price chart

Source: TradingView

The Dow Jones Industrial Average (DJIA) closed up 0.35% at 28,234. The S&P 500 gained 0.71% to close at 3,191 and the Nasdaq Composite added 0.91% to reach 8,814. The moves were in percentage terms smaller than those in the UK, but all three were already trading just below their all-time highs.

Asian markets also rallied. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1% and reached price levels not seen for almost 18 months. Japan’s Nikkei 225 index closed up 0.48% at 24,066.

 

Easy come, easy go

The Australian ASX 200 index closed Tuesday slightly down at 6,847 (down 0.035%) and gave the first indication that the rally may be showing signs of fading.

S&P ASX 200 (S&P:XAT) – Daily Candle – January-17th December 2019

Source: TradingView

Vishnu Varathan, head of economics and strategy at Mizuho Bank in Singapore, said:

“People are looking to close the year on a good note … I think that these are far more opportunistic than they are conviction trades, so they tend to be a little bit more prone to taking profits.”

Source: Reuters

Monday’s gains were pared back in the early session of European trading. The DAX Index was trading at 13,334, down -0.54%, and the French CAC index was down 0.30%. The FTSE 100 was holding above the psychologically important 7,500 level and down only 0.0027% on the day.

Imre Speizer, analyst at Westpac, was not the only person to question what is actually supporting the mini rally. He said:

“Well, yeah, they’ve agreed a ‘phase one’ deal, but what’s actually in it?Equity markets just want to rally, so they’ll pick on anything that seems remotely positive, but the other markets are maybe a little more thoughtful about exactly what’s going on.”

Source: Reuters

Monday did, after all, see the UK and Eurozone both post disappointing PMI data. The numbers not only kept the threat of recession in investors’ minds but also missed consensus projections.

 

Here comes Santa

The December price action is beginning to mirror the form of a typical Santa rally – even down to the trademark dip in the first part of the month. The 2.5% slump in the SPX 500 that occurred in the first week of December ticked a lot of boxes for those looking to profit from the well-known and now self-fulfilling market phenomena.

SPX 500 Index – 18th November-17th December 2019

Source: TradingView

Those who bought the early-month dip have been sitting on returns of up to 4.2% over a 10-day period. The question being asked now is whether to hold into the year-end or take some profits.

SPX 500 – Daily Candle – 7th November-17th December

Source: TradingView