Major global equity markets ended the week softer amid an interest rate hike by the Federal Reserve as well as indications of further rate hikes into 2019, the US has revived threats of a government shutdown and Brexit uncertainty persists as EU prepares for no deal. In the US, the Dow Jones (-6.87%), S&P 500 (-7.05%) and Nasdaq (-8.36%) all ended the week lower. In Europe, the Euro Stoxx 50 index closed the week down 3.58% and the FTSE 100 index was 1.81% softer.
As was widely expected, the Federal Reserve raised short term interest rates to a range between 2.25% and 2.50%. The Federal Reserve also indicated that there would be two more rate hikes in 2019. This is down from the previously anticipated three rate hikes but it is still seen as a signal of a growing economy, even though data suggests the pace of growth in the US is slowing as the effects from tax cuts and fiscal stimulus fade.
The partial US government shutdown is set to continue through Christmas as Congress adjourned on Saturday with no deal to end the shutdown over funding for President Trump’s US-Mexico border. Trump is demanding $5.00 billion for the US-Mexico border. The most critical US government agencies remain open but some 800,000 federal workers have been impacted with some jobs being forced to take unpaid leave, days before Christmas.
The European Union outlined measures to anticipate a no deal between the EU and UK on the 29 March. Among the more important measures outlined was the continuity of financial markets by assuring that UK and EU investors can continue to use central counterparties to clear derivative contracts. As it stands there is no consensus for a deal with the EU and raises the possibility of the Brexit question being put back before the voters.
All of these variables have added to market volatility but have also created buying opportunities for long-term investment. Currently, the S&P 500 is below its five-year price per earnings ratio, signalling an attractive opportunity to invest in equity markets given solid US economic growth and consumer spending data. For long-term investing, fundamentals are more important than short-term fluctuations and with equity markets expected to grow in 2019, albeit at a slower pace, these fluctuations are seen as buying opportunities.
Market Moves of the Week:
Locally, equity markets held up relatively well with the All Share index down 0.25% spurred on by Resources (+0.43%) and Industrials (+0.03%). Financials (-0.34%) and Listed Property (-1.71%) weighed on the index.
The rand weakened by 1.72% to the greenback over the week. The rand was set to make a 0.50% gain on the dollar this week amid the Federal Reserve decision to raise short-term interest rates. The gains were later reversed as the dollar strengthened to close the week stronger. The yield on the 2026 government note closed the week at 9.00%, 0.20% lower than the week before.
Chart of the Week:
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The information included above as well as individual companies and/or securities mentioned should not be construed as investment advice, a recommendation to buy or sell or an indication of trading intent on behalf of any Strategiq product. Strategiq Capital is an authorised financial services provider (FSP 46624).