Week ending 6th December 2019.

In the penultimate week of the UK election campaign trail, following a somewhat stagnant television debate on Sunday (which Boris Johnson and Jeremy Corbyn did not attend), it was no surprise to see Labour leader, Jeremy Corbyn, target the NHS as a key battleground in this election early in the week. Ahead of the commencement of the NATO (North Atlantic Treaty Organization) meeting in London at the beginning of the week, Corbyn issued a letter to US President, Donald Trump, asking him to revise the US negotiating objectives for a post Brexit trade deal, demanding that he will not try and drive up drug prices in addition to asking for reassurances that the NHS will be left out of any trade negotiations. This letter was a letter of intent from Corbyn, and appeared more tactical than genuine, as Labour try to claw back some ground in this election, with the Conservatives still leading in the polls. That being said, this evenings television debate had no runaway winner, seeing Corbyn raise the leaked trade document between the US and UK in addition to the Irish border, and indeed Johnson raising the issues of antisemitism within the Labour ranks amongst other things!

From a global perspective, arguably the most significant event this week was the meeting of NATO in London, seeing world leaders come together in London in order to discuss defense. However, despite the intent, the proceedings were dominated by global trade and indeed US demand for member countries to pay more for defense. With that in mind, the meeting was largely non-progressive from a defense standpoint, with loose agreements in terms of how NATO funding should be split. However, with Donald Trump stating that he was happy if Chinese trade negotiations waited until after next year’s US presidential election to be settled, and with him not mentioning the intended plans for the final round of tariffs on Chinese goods (due 15 December 2019), the market was largely left confused as to what this meant for trade. However, it is clear that with the US election campaign trails beginning to pick up in pace, and with the Trump administration having been anything but successful in implementing many of the intended election promises from 3 years ago, Trump will not likely want to ‘rock the boat’. And, with Trump a few months ago highlighting the risk to the US consumer of the next round of tariffs, it seems likely that he will not want to damage the US domestic economy before next year’s election… so, whilst he will want to chalk up some form of trade ‘win’, do not be surprised if he begins to soften his tone as negotiations persist! Please bear in mind that I do not say this lightly, given that Trump managed to fall out with French President Macron and Canadian Prime Minister Trudeau, at the NATO meet whilst storming out of the gathering early due to other leaders apparently ‘teasing’ him behind his back. But, as has been made clear over the years, Trump is relatively fickle and these things will likely be quickly forgotten! Let’s remember, Trump pushing his expectation of a US/China trade agreement until after next year’s US election (apparently softening his stance) came on the same day that the US House of Representatives approved a legislation that imposed sanctions on Chinese officials regarding human rights issues in the Xinjiang region of China… the point being, consistency is not his strong point, and often headlines can mask true intentions and indeed the true impact to an economy.

Elsewhere we saw Christine Lagarde, head of the European Central Bank (ECB) testify at the European Parliament on Monday. Her rhetoric was consistent and clear, highlighting that the ECB’s last strategy meeting was 16 years ago and that clearly a lot has happened since. As part of this intended overhaul, climate change policy and inflation are key, with Lagarde reinforcing that current monetary stimulus, whilst unchanged, is to be reassessed and that fiscal stimulus could be key to driving inflation to the target levels. This suggests the rate cutting environment within the EU is all but over. Whilst the current inflation target is vague set at “below, but close to 2% over the medium term”, setting it at a firm 2% seems a likely outcome of the review. Markets seemed relatively agnostic of Lagarde’s words, with the focus set firmly on the NATO meeting, so the rolling out of any proposed changes could see a positive impact on the European markets!

Thursday saw Japanese President Shinzo Abe announce a 25 trillion Yen stimulus package, with approximately half dedicated towards 3 pillars: disaster rebuilding & Safety, overcoming economic downside risks, and sustained economic vitality following the Tokyo Olympics. The remainder of the package is accounted for by government loans, credit guarantees and private sector spending. This is a step in the right direction for a country whose modern policy has centered round monetary policy (quantitative easing and interest rate manipulation).

In terms of Data, Monday saw China release its PMI data, coming in well ahead of expectation (51.8), suggesting manufacturing in the world’s second largest economy is in better shape than many expected. UK PMI data also beat expectation across the board, and European GDP came in line with expectations. Friday saw the release of US jobs data, and whilst headline unemployment decreased, the participation rate also decreased suggesting there is still some noise in the data. That being said, there was a stronger than expected increase in US payrolls across the board.

Jonathan Wiseman, Fund Manager

*Jonathan Wiseman is a Fund Manager at Wealth at Work Limited which is a member of the Wealth at Work group of companies