Risk assets were bid upwards last week following an easing in geopolitical stress. A ‘hard Brexit’ now seems less likely, and the UK will be given until 31 January 2020 to get its act together. Meanwhile Donald Trump is confident that a partial trade deal can be clinched with China around mid-November in Chile.

Economic growth remains lacklustre, pinned back by higher trade barriers – which are hampering world trade flows and business investment. Countering this, the central banks are keeping the cash flowing in, which is at least encouraging the general mood. Last Thursday, ECB governors voted unanimously to keep policy unchanged. Mario Draghi, his last time at the wheel, sounded a sour note about the Euro area’s growth outlook, just as latest PMI numbers had confirmed stagnation. Over in Germany, the services reading dropped to 51.2 versus the expected 52, while the manufacturing indicator eked out a moderate increase up to 41.9. The Ifo index (tracking the business climate) was a mere 91.5. Calls for the German government to start spending are becoming deafening but it insists on maintaining a balanced budget. In the US, durable goods orders most recently fell (especially in transport), but the manufacturing PMI recovered to 51.5.

Reporting season is under way and results broadly have been higher than expected, which has provided further support to equity markets. Investors have reacted positively to guidance, despite a disappointing outlook from industrials such as Boeing and Caterpillar, reflecting a renewed appetite for risk. Likewise, the share price of Amazon, which forecasts a low advance in volumes during the festive season and reduced cloud business, hardly budged. Last week the semiconductor sector was trending upwards while luxury goods firms such as Hermès and Kering, which had been causing concern following the events in Hong Kong, did fine in the end.

On the outcome of the Fed meeting ending this Wednesday, futures contracts price in a 90%-plus probability of a quarter-point reduction in the Fed Funds rate, justified by deteriorating economic conditions. Job creation is estimated at just 95,000 in October and GDP growth at 1.6% year on year in the third quarter, according to consensus figures. Equity markets have been on the rise since early October but this round of appreciation does not bear the hallmark of the exuberance often preceding sharp corrections. Overall, average exposure to equities has declined in recent months. Geopolitical fears continue to linger but investors are reacting to news calmly.
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