A Volatile Start To 2020
After starting the year on a more positive note, geopolitical uncertainty weighed on financial markets this week, after US President Donald Trump ordered the killing of top Iranian general Qassem Soleimani, bringing US-Iran tensions to a head. US Officials justified the move, stating that Soleimani was planning to attack a series of American targets within a matter of days, and was responsible for the training of terrorist armies and thousands of US deaths. The unexpected attack sent shockwaves through global markets on Friday, spilling over into Monday trading. Oil surged above $70 a barrel at the beginning of the week while global equities extended losses. Safe havens climbed, with gold rising to the highest in more than six years.
Tensions soared again today, as Iran struck back at the US, firing a series of missiles at two military bases in Iraq which were housing US troops. The strikes raised fears that the two countries were closer to war. But there were some indications that there would not be further retaliation on either side, with many observers labelling retaliations carefully calibrated, as to satisfy the outrage in Iran but provide an off-ramp to the crisis at the same time. President Trump announced in a statement earlier today that there would be no further action as it appeared that Iran was standing down, allowing markets some reprieve.
For more information on the Iranian missile attack, and what impact this has on our expectations and markets going forward, please see the attached Market Update document.
Waiting on the Data
As it stands, recent events have not altered our market outlook or positioning, and we continue to observe the economic data, waiting for confirmation whether bright spots observed in the data are temporary flashes of light against an otherwise bleak backdrop, or a more sustained improvement in the growth outlook.
Data released last week highlights the disparity between generally favourable conditions for consumer spending while business activity struggles in the face of persistent external and trade policy-related headwinds. Consumer spending remains the driving force behind GDP growth in both the US and the Eurozone, indicating that the consumer remains strong, which is encouraging. Labour market, home price and consumer confidence data released over the course of the week convey a favourable backdrop for consumer spending and a healthy labour market. On the other hand, global manufacturing continues to struggle amidst slowing global growth and trade policy headwinds, despite expectations for the phase one trade deal between the US and China to be signed next week.
Overall, we remain cautiously optimistic about risk-on asset performance, and expect to see a mild growth pickup in the first half of the year, supported by a stabilisation of the data, loose central bank policy and short term de-globalisation. We are poised to advantage of opportunities as part of our re-entry into equities once the data permits.
The US and China appear to be on track to sign the phase one trade deal, with President Trump set to welcome Chinese officials to the White House on January 15th. This is just the first step in resolving long-standing trade issues, however trade optimism is expected to provide markets with some upward momentum over the week.
Key Events We Are Watching This Week:
- Thursday: Eurozone unemployment rate for November
- Friday: US unemployment rate for December, Non-Farms Payroll data.
For anyone who wants further data to substantiate the position please review the attached Global Economic Update document and the Economic Dataset below.
Model Portfolios & Indices
Global equity markets remained mixed over the week, with trade optimism being partially offset by risk-off sentiment owing to an escalation in US-Iran tensions. The OBI portfolios remain defensively positioned in comparison to normal market conditions, and we continue to closely monitor the data, looking for opportunities as they arise. The portfolios gained over the week owing to strong performance of our small/mid cap assets earlier in the week prior to the increase in US-Iran tensions, with changes made in recent weeks expected to continue to provide further support to portfolio performance going forward.
Please note that the YTD data in the table below reflects performance from the start of the new year.
The data above will not directly correlate to the indices as there is always a delay in pricing because the US markets close significantly later than the European markets and the Asian markets. The data set above reflects the last close and much of the day’s movements will not yet be reflected in the portfolios due to pricing delays. You cannot therefore directly correlate indices to the portfolios. The value of investments may fluctuate in price or value and you may get back less than the amount originally invested.
Past performance is not a guarantee of future performance. Performance figures quoted include the fund manager charges but exclude other fees such as adviser, custodian, switch and/or discretionary investment management fees. Unless otherwise instructed and accrued, income is reinvested into the portfolio.
This Day in History
On this day in 1918, US President Woodrow Wilson outlined his Fourteen Points for peace after the Great War. The principles were used for negotiations in order to end WW1.
Have a great week,
Jason & Gina