Monthly Market Pulse: January 2020

Chart of the month: J.P.Morgan Global Manufacturing PMI

Source: J.P.Morgan, IHS Markit

Politics

• 2020 kicked off with a renewed bout of geopolitical risks. The killing of Iran’s general opened a Pandora’s box in the Middle East and while the direction of the conflict is highly unpredictable, we expect the stand-off to get worse before it gets better.
• The Brexit withdrawal agreement is now closer to being fully realised by the government as MPs in the House of Commons gave their final assent to Boris Johnson’s deal and the House of Lords have sent the amended bill back to MPs. The deal will now have to be ratified by the European parliament by the end of January.

Business

• On January 15, the US and China signed a historic deal to ease the trade war. The deal was dubbed ‘transformative’ for the US economy by President Trump as China pledged to boost US imports by $200 billion above 2017 levels.
• As world CEOs, captains of industry, leaders, politicians and stars gather in Davos for the 50th edition of the World Economic Forum this week, American politics and the crisis in the Middle East are the biggest threats facing the world this year.
• In preparing its report ahead of the Davos meeting, the World Economic Forum surveyed 750 global experts and decision makers who named economic confrontations and national political polarisation as the top risks in 2020.
• Recent reports by the Eurasia Group and ControlRisks warn of increased turbulence this year from trade conflicts and political polarisation that makes it harder to tackle global challenges.

Real Estate

• Average annual UK house price growth edged up as 2019 drew to a close. December saw average UK house prices grow by 1.4%, the largest increase since November 2018. Sentiment improved on the back of the election and MPs vote to pass Boris Johnson’s EU withdrawal bill as political deadlock over Brexit was finally resolved.
• As a result, Q4 was the strongest quarter of 2019, with average UK house prices up by 0.8% compared to Q4 2018. Three regions saw particularly strong growth in Q4: Scotland, West Midlands and the north. They saw 2.8%, 2.7% and 2.6% year-on-year growth respectively. The north of the UK had its strongest quarter since Q1 2018.
• However, 2019 overall saw a modest 0.5% UK house price growth, down from a 2% growth in 2018 as Brexit uncertainties took a turn for the worst prior to the election. There was a wide regional divergence in growth, with Northern Ireland once again outperforming every other UK region by a far margin and London underperforming sharply. In 2019, average houses prices in Northern Ireland grew by 3.2% while in London prices were down by 2%.

Equity Markets

• Although stock markets got a negative shock in the first trading days of 2020, eased trade tensions between the US and China and signs of a strengthening global economy could be good news for international equities, particularly European.
• Beyond the short-lived volatility that followed the US strike that killed Iran’s Soleimani, global equity markets have started 2020 on a strong note and US equity markets hit fresh record highs as news emerged of the historic US-China trade deal.
• Our and markets’ optimism on equity markets comes from positive economic data – both hard and soft indicators suggest that the global slowdown may have bottomed out while manufacturing and global trade indicators have recently ticked up.

FX & Commodities

• Expectations of a rate cut by the BoE at the meeting on January 30 have kept the Pound under pressure recently despite a clearer resolution to the Brexit deadlock. Investors are rating the chances of a rate cut at 60%, up from 5% just a week ago.
• Oil price edged higher on the aftermath of the geopolitical escalations before falling back to a six-week low after weekly US government data revealed a hefty increase in domestic supplies of gasoline and distillates. Meanwhile, OPEC raised its 2020 global oil demand estimates due to healthier global economic growth.
• Gold rose to a near 7-year high of $1,610 in early January as the US and Iran came head to head in what is probably so far, the highest point of the two country’s forty-year animosity. The rally faded with a lack of further military escalation in the region.

Closer to home here at Blend Network, we have had a good month so far and are about to list a number of loans. We have got an exciting pipeline of loans that are currently undergoing due diligence, and if approved by our credit committee, will be listed on www.blendnetwork.com in February. So, make sure you’ve got yourself on AutoLend and have your e-wallet topped up so that you don’t miss the chance to lend on the new loans coming up.