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The FTSE 100 is called to open 4 points higher at 7441. Stocks closed broadly higher Friday, giving the S&P 500 index its third weekly gain in a row and putting it within reach of the record high it hit last September. Banks led the gains on Wall Street after JPMorgan Chase reported a strong quarter, helped by higher interest rates. Disney soared after unveiling a new video streaming service to go up against Netflix, the industry leader. Asian stocks were mostly higher on Monday in morning session, with Japan’s Topix touching its highest level for 2019, after strongerthan-expected China data on Friday improved investor confidence.
Populism appears to have been the dog that hasn’t barked over the past few years. While populists have won notable victories in the US, UK and Italy, there has been relatively little fallout for investors. For some asset classes, you could even argue that populism has had a net positive effect, with Donald Trump’s tax cuts delivering a large boost to company earnings and the US economy overall.
500 miles north of San Francisco, stands one of the last holdouts from the rise of Silicon Valley. Bend, Oregon, is home to the world’s last Blockbuster, the sole survivor of what was once an 8,000 strong empire in the US, with thousands more across the world.
After a turbulent end to 2018, global equity markets recovered most of their losses in Q1 as the US and China appeared close to a bilateral trade agreement and the Federal Reserve indicated that it would, if necessary, delay normalising monetary policy to avoid recession. The FTSE100 rose 551 to 7,279 - a total return (including dividends) of 8% over the quarter. The broad-based US indices gained 13% in local currency terms - marginally higher than the 12% return on European equities. Japan, Asia and emerging markets lagged at around 6%. For UK investors, sterling’s modest rally to $1.31 depressed international returns by 2%. Global bonds were the major surprise as slower growth prompted a sharp fall in yields and a flattening curve. The German bund yield turned negative again while the decline in yields on 10 year UK Treasuries to 1% meant conventional gilts returned 3% and longer duration index-linked 7%. OPEC’s continuing supply discipline saw Brent crude rise from $54 to $68.
Markets traded broadly sideways over February, with January having already seen a rebound from fourth quarter lows. European equities were the strongest performers rising 3.8%, just ahead of the 3% gain in the US and Japanese markets. Asia and emerging markets lagged other areas, the latter being down 0.7% over the month.
Risk assets recovered strongly in January and – although not recouping all their fourth quarter losses – recorded positive returns. With global economic growth continuing to slow, markets were reassured by the Federal Reserve’s signal that US interest rate rises were effectively on hold and the possibility of a face-saving resolution to the US/China trade talks. However, sentiment indicators remained relatively depressed, suggesting a degree of scepticism about the sustainability of the rally.
The tapering of quantitative easing and normalisation of monetary conditions has continued throughout 2018, resulting in lower liquidity. The process will enter a new phase next year as total central bank asset purchases turn negative, leaving the private sector to absorb a significant increase in bond issuance.
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