Go figure stocks markets, for the past few years, investors have been sceptical as there has been little sign of earnings growth, modest economic growth. In the face of this scepticism equity markets have been rising. Valuations we were told were unsustainably high. Equity markets were just being propped up by cheap money. Now we get the conditions that are supposed to favour equity markets. Company earnings have grown this year, valuations are now closer to being in line with historic norms, the global economy is growing, yet equities are unloved. December has been traditionally the best month of the year for equity investors. In contrast, his has been the worst start to December since this month 2008 when equity markets fell 5%.
Equity investors were buying into the anticipated upturn, they now are selling into the anticipated economic slowdown as monetary policy tightens. A week that started with positive statements from the G20 meeting. Alongside comments from Jerome Powell that the Federal Reserve is overall comfortable that there are no real signs of asset bubbles and that the financial system is robust, did little to reassure investors. Post the arrest of the daughter of Huawei finance director, equity markets were shaken again. A tweet from Trump that he sees a trade deal with China in the coming weeks did little to reassure equity markets. By the end of the week, US equity indexes had fallen in excess of 5%.
Brexit uncertainty is certainly undermining equity markets in the UK and Europe, it is possible the uncertainty is also having an effect on sentiment across the broader developed equity markets. This week we get the vote by parliament on Tuesday. Although there is some suggestion in the Sunday that Theresa May might try and delay the vote going back to the EU for further concessions. Jeremy Corbyn is apparently waiting to run a minority government on Wednesday should the Government lose.
Aside from Brexit, there is plenty of economic data to focus investor attention. US inflation and retail sales will be important as it could influence how investors think the Fed might look at interest policy into the coming year. Interest rates will be on the agenda in Europe as the ECB meeting this week to announce their late rate decision. As always, the following press conference is often where one can get better insights into how the ECB is considering monetary going forward.