Markets are in a festive mood

“Politics creates short-term volatility,” but “at the end of the day the business cycle matters above all”, Andrew Milligan of Aberdeen Standard Investments tells Michael Mackenzie in the Financial Times. “Political and protectionist noise” has repeatedly rattled markets this year, says Mackenzie, but with the MSCI World index up more than 21% and the FTSE All-World index loitering just shy of all-time highs, 2019 has been a reminder that deeper factors than yesterday’s headlines drive stockmarket returns.
The global economy is on the mend
Donald Trump provoked renewed alarm last week when he announced surprise tariffs against Brazil, Argentina and France. On Sunday Washington is due to impose new levies on $160bn of Chinese imports. One does wonder “whether investors are beginning to tire of the task of tracking the tantrums and are only really pretending to care”, writes Jonathan Allum in The Blah! newsletter. “Volatility is draining out of share prices” and, for all the trade distractions, the global economy is “gathering a little momentum”.

Last Friday’s US job numbers cheered markets. November’s 266,000 gain in non-farm payrolls came in far above forecasts, reassuring traders that American consumers, a key pillar of global growth, will continue to spend freely. That sent the Dow Jones Industrial Average up 1.2%, reports Fred Imbert on CNBC, its best showing since early October.
Many of the global economy’s recent problems have come from the manufacturing sector, says John Authers on Bloomberg. Widget makers have “run into serious trouble” even as the service sector has “continued serenely” in Europe and elsewhere. But now order and inventory data from multiple countries suggests that we are finally “nearing the end of a slowdown in the manufacturing cycle”. A tentative recovery is under way.
A question of confidence
It is no mystery why markets have enjoyed a strong year, says Louis Gave of Gavekal Research. “We now live in a world where almost every central bank and every finance ministry is stimulating at the same time.” What’s more, this comes at a time when unemployment in “the US, Japan, Germany and the UK” is at generational lows.
This summer’s yield-curve inversion left markets “braced for an instant recession”, says Authers. But then central bankers rode to the rescue. The latter part of this year has been marked by a surge in monetary liquidity across the developed world. The result is that “animal spirits” are back, but history shows that such “extreme whipsawing of sentiment can set us up beautifully for financial accidents”.
Market participants are certainly determined to end the year in festive spirits, says Barbara Kollmeyer on MarketWatch. Deutsche Bank strategists kicked off December by declaring that the global economy is heading for better times. The Caixin PMI gauge of Chinese factory activity hit a three-year high last month. “Is that you, Santa Claus?”