He might be able to quote Cicero and Catullus, but last week Boris Johnson seemed keener to borrow a few lines from Donald Trump’s playbook.
The prime minister told his new Cabinet that they should be unafraid to talk of themselves as a “people’s government” and banned them from attending Davos, that annual, glitzy, Alpine gathering of political and financial leaders.
In the Queen’s Speech, Johnson stressed his commitment to achieving a rapid Brexit over and above a close continuing relationship with the EU: speed over substance to his detractors – keeping his electoral word to his followers. But last Friday, he did get his Withdrawal Bill comfortably through parliament: progress just days after his election victory.
In Trumpian fashion the prime minister, having already blocked the publication of a report on Russian meddling in UK politics, sought to pile pressure on the media and judiciary. (The BBC upset him with its response when he pulled out of an Andrew Neil interview in election season; the Supreme Court when it ruled his prorogation of parliament was illegal.) The BBC’s licence fee and the power to appoint judges will both be subject to government reviews.
By and large, however, Boris Johnson has had a happy first few months on markets, again echoing Trump’s own experience. His determination not to delay the transition period (and to risk a no-deal Brexit), announced last Tuesday, did deliver to sterling its biggest single-day loss since November 2018, and the descent continued over the five-day period; but sterling remains comfortably up since Johnson came to power. Economic data last week came in positive for jobs – which reached their highest level since 1974, even as weekly real earnings remained below their pre-crisis peak – but not for retail sales, which dipped sharply last month.
The FTSE 100 had a strong five days too, almost all its gains achieved first thing last Monday, and looks set to put in an exceptionally strong year. Indeed, stocks around the world have continued to enjoy their bull run this year, from the US to emerging markets: the S&P 500 in the US, CSI 300 in China and EURO STOXX 50 in Europe all rose last week, and are likewise set to end the decade in fine fettle.
In part, this reflects continued growth in the global economy. China’s industrial data and retail sales picked up, according to fresh data, and US Purchasing Managers’ Indices pointed to rising confidence, while sentiment remains strong after the progress made in US–China talks the previous week. In short, an imminent global recession is not widely anticipated, although there are weak spots, among them growth in Europe.
“It may be some time until we witness another year in which gains are as impressive, given that we appear to have reached the limits of monetary easing in many jurisdictions and equity valuations are becoming stretched on the S&P,” said David Riley of BlueBay. “In many respects, 2019 has been a year in which macro fears have gradually melted away.”
The relatively buoyant market mood could yet mean more deals in the UK market, with Labour’s nationalisation plans now well and truly off the Christmas menu. One touted beneficiary is Deutsche Bahn (DB), owner of Arriva, a UK transport company. Arriva, which has its headquarters in Sunderland, might have been taken into public ownership under Labour plans. DB now plans to list Arriva on markets in 2020.
Oil was another key theme last week. Global oil traders continue to use Brent crude as one of their two leading price guides: last week it closed at $65 a barrel. The Brent oilfield in the North Sea, after which the benchmark is named, is no longer economically viable. Shell is currently decommissioning its four platforms at the site; the related tax breaks mean it has disclosed it paid no tax on £731 million of profits last year. Bad publicity it may be, but the FTSE 100’s largest listing has barely fallen this year. Indeed, the sector has been stable through the second half of the year, despite the largest supply outage in the industry’s history.
Central banks offer another reason why many investors continue to feel optimistic about the outlook for 2020. Sweden’s Rijkbank, the world’s oldest central bank, did end five years of negative rates last week, but the Bank of England left rates on hold in anticipation of a post-election growth boost. It expects growth in the fourth quarter to rise “only marginally” but still anticipates improved growth in 2020. Further afield, investors are banking on the ECB and Fed being cautious of rapid tightening.
Any rapid tightening would be a concern for emerging markets. Last week, the World Bank warned of a “towering” pile of emerging market (EM) debt, adding up to $55 trillion; the fastest such increase in modern history. That puts debt at 170% of EM GDP, while in China it is 255%. Unsurprisingly, China accounts for the lion’s share of the broader EM figure. So long as growth remains robust, this is thought to be manageable – unless rates track upwards at any speed.
BlueBay is a fund manager for St. James’s Place.
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