Cambridge Weekly Update – 11th November 2019

Recession concerns retreat, but growth remains a hope

Equity markets were in a good mood this week. That is in no small part due to progress in US-China trade negotiations, in which both sides agreed to the removal of already imposed tariffs in a number of phases. Donald Trump’s trade war against China is among the biggest concerns for global investors (even more so than the all-encompassing Brexit drama here). It seems that recent weakness in the Chinese economy (and possible electoral weakness for the Trump administration) has made a compromise necessary. And as we have written before, with a sluggish global economic backdrop, a positive outcome on trade between the world’s two largest economies will be vital for the health of markets and the economy going forward. Investors are well within their rights to have a little optimism then, albeit with a dash of caution. We discuss this in more depth in a separate article this week.

Trade truce on the horizon?

Progress at long last. US and China are close to ending some of the tariffs they have imposed on each other’s exports. Spokesperson for China’s Commerce Ministry Gao Feng told reporters on Thursday that both sides had agreed “to remove some of the additional tariffs in phases” which will “help to stabilise market expectations,”

Questions remain over the much-discussed ‘phase one’, not least where presidents Trump and Xi will meet to put pen to paper (officials are still squabbling over whether the signing party should be in Iowa, Brazil, Hawaii or Alaska). More importantly, which tariffs are first to go is still undecided; “that will depend on the content of the phase one agreement,” according to Gao.

Global PMIs: Not out of the woods yet

As regular readers will know – 2019 has seen a marked slowdown in global growth. Anticipation of this caused panic at the end of 2018 as equity markets convinced themselves that a global recession loomed ahead but central banks would continue to tighten monetary conditions regardless. There has been a recovery in market sentiment since the start of 2019 as central banks reversed monetary policy back to an easing stance. But we wrote some weeks ago that, for this to continue, we would need to see a definitive turnaround in the underlying economic data. So, it is worth having a look at what the latest data say on the matter.

Read the full commentary here