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MARKET UPDATE: GLOBAL SHARES RISE AS US AND CHINA SIGN INITIAL TRADE DEAL

LAST WEEK – KEY TAKEAWAYS

Trade: US and China sign initial deal

Global shares rose after US President Donald Trump and Chinese officials met in Washington DC to sign the first phase of a trade deal;
The US has cancelled some tariffs- taxes on products imported from abroad- and promised not to impose any new ones for the time being, while China committed to enhancing the protection of intellectual property (patents, trademarks and copyrights) and purchasing US$200 billion of US goods and services over the next two years.
Omnis view: The conclusion of this initial trade deal should reduce uncertainty for the global economy in the short term. However, several of the most contentious issues remain unresolved and will need to be addressed in the next phase of negotiations (no date has been set yet), so the markets may face further turbulence in the future.

UK: Interest rate cut looks likely

The pound weakened against the US dollar as figures showed UK economic growth slowed in November and consumer spending and inflation- the rate at which prices rise- fell in December.
Omnis view: The relative weakness of the economic data released last week increases the likelihood that the Bank of England will cut interest rates at its next meeting at the end of January.

US: Trump planning more tax cuts

Larry Kudlow, one of the White House’s top economic advisors, announced that President Trump is planning to introduce a further round of tax cuts later in the year.
Omnis view: President Trump’s tax cuts in 2017 propelled the US economy, so he will be hoping the next round has a similar effect and boosts his chances of winning the upcoming presidential election.

China: Economy grows at slowest pace since 1990

China’s economy grew at 6.1% in the final quarter of 2019, below expectations and at its slowest pace in nearly 30 years[1].
Omnis view: Trade tensions have evidently weighed on the Chinese economy, so the initial deal (outlined above) should offer some welcome respite. However, US tariffs remain on a wide range of the country’s goods, so Beijing has a strong incentive to continue with trade talks.

Corporate earnings: Strong start from US banks

JP Morgan Chase, Citigroup, Morgan Stanley and Bank of America beat profit forecasts in the fourth quarter of 2019, but Goldman Sachs and Wells Fargo fell short of expectations.
Omnis view: US banks set the tone for earnings season so these results are encouraging, but overall earnings among US companies are expected to fall by 2.1% in the fourth quarter according to research firm FactSet[2].