Weekly Market Update

20/01/2020

The long-awaited trade deal between the US and China was signed in Washington, sending markets higher. The deal will see much more open access to China’s financial services and banking markets, while China will commit to spend $200bn to reduce the trade imbalance between the two countries, as well as cracking down on intellectual property theft. The deal fails to address contentious issues around commercial cyber theft and China’s use of commercial subsidies, and of course the deal only requires 60 days’ notice to terminate. A phase two deal is set to cover technology and cyber-security issues but looks much further out. For now, it draws a line under the trade tensions that simmered over the last couple of years.

On the data front, China’s economy weakened to its slowest growth rate in almost three decades over the course of 2019, as weaker domestic demand and trade tensions took their toll. China’s economy grew by 6.1 per cent last year, its worst performance since 1990. In the US, the monthly employment report continued to point to a jobs sector that continues to weaken but at a very gentle pace. The US saw 145,000 jobs created in December, slightly lower than expected, as was wage growth, which slipped to 2.9 per cent year on year, the weakest in 18 months.

In the UK, inflation fell further away from the central bank’s target, with prices rising 1.3 per cent over the month, below expectations of 1.5 per cent and the lowest reading since November 2016. Many members of the MPC support an interest rate cut and the futures market has now priced in a 62 per cent chance of a cut on 30th January, when the MPC next meet.

The European Commission announced details of its ‘European Green Deal’. This involves a €100 billion package to fund renewable and sustainable investment, which will increase over time. The aim of these measures is to make the European Union carbon-neutral by 2050, and to compensate the losers of the transition away from a carbon-based economy. Much of the package is aimed at encouraging fossil-fuel-dependent countries such as Poland and the Czech Republic to move away from carbon-intensive industries. Poland has so far refused to sign up to the Green Deal; now there is a considerable financial incentive to do so.

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