A ‘phase-one’ deal between the US and China is no longer the almost-certain prospect it was not so long ago, leaving investors fearing that the tariff increases planned for 15 December will now go ahead.

No one is really listening these days to the remarks from US and Chinese leaders, who are trying to talk unity but with a fair dose of woolliness as well. Apparently, Xi Jinping has let it be known that he is not scared of a trade war, and the People’s Republic wants a deal based on mutual respect and equal treatment. Meanwhile Donald Trump thinks that a deal is just around the corner, and Xi wants it more badly than he does. In another development, the Trump administration is considering launching a trade inquiry into its dealings with the EU, investigating whether it would be justified to slap customs duties on car imports into the US.

Purchasing manager indicators (PMIs) reported in the Eurozone this month have again been weak. The manufacturing PMI stands at 46.6 while the composite PMI has edged down to 50.3. The slowdown in manufacturing is spreading to the services industry, suggesting a near standstill in economic growth during the fourth quarter. In Germany, however, the worst of the manufacturing slump may be over, as reflected by a small increase in the November PMI to 43.8. In Japan, the slowdown has continued, with the manufacturing PMI contracting this month and exports in the red. Elsewhere, the US consumer confidence index rose to 96.8. The latest OECD forecast is for global GDP growth of 2.9% in 2019 and 2020, which would be the slowest rate since 2008. For this year, it forecasts GDP growth of 2.3% in the US, 1.2% in the Eurozone and 6.2% in China.

We feel that some equities are now overbought, so caution is advised. Depending on how the US election campaign pans out and which candidates emerge as the front-runners, more volatility can be expected in share prices during the months ahead. Specifically, investors will be watching the debates and listening to proposals about the healthcare system, tech giants and corporate taxation.
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