There was a plethora of issues that gave investors reason for caution in November: political issues weighed on sentiment, data in Europe disappointed and the commodities rout continued. Under pressure from the oil and gas sector, the iShares S&P 500 ETF was temporarily down 2.4% but rallied by month-end as the Fed attempted to reassure markets. This provided some respite from what was a turbulent month worldwide, however, this was not enough to stop losses in other major equity markets:

Source: Financial data and analytics provider FactSet. ETFs used as proxies for main markets.

There were signs of light at the end of the ‘Brexit’ tunnel as Theresa May returned from Brussels with an agreement on the Withdrawal Treaty, although much of this progress was negated by the departure of several key ministers in protest of her deal. The iShares FTSE 100 ETF was the main victim, falling 1.9%, with sterling slightly off (-0.1%) against the dollar. We maintain our underweight UK Equities position as our base case – protracted Brexit uncertainty – appears to play out.

In Europe, the November PMI data suggested that growth stagnation is around the corner just as Italy looks certain to enter recessionary territory. The reading came in at 52.4, which represented a 0.7% drop since October and implied Eurozone growth of only 1.5% for the year.

Source: Markit, J.P. Morgan, 23 November 2018

This ‘risk off’ sentiment was made manifest through market action. European defensive sectors such as Telecoms, Utilities and Staples outperformed cyclical sectors such as Autos and Commodities. Our broad tilt towards quality companies within our equity funds benefitted as a result.

Conversely, Oil & Gas indices plummeted with prices sinking up to 24% as OPEC members showed little interest in cutting production. Alongside increased speculation of a more pronounced fall in demand globally, oil prices reached their lowest levels since October last year at c.51 $/bbl.

Source: Financial data and analytics provider FactSet

OPEC members met on the 7th of December to discuss potential production cuts, but did not come to an agreement on the day. However, President Trump has made it clear that this would not be his favoured policy at this juncture. Higher oil prices are an obstacle to further economic growth in the President’s eyes; he seems willing to use the issue as another political chess piece.

The US showed some signs of slowing – albeit from a very healthy base – as inflation data in particular cooled down from the previous month. The Fed’s preferred inflation measure, the core PCE (Personal Consumption Expenditure) index, fell to 1.78% from 1.94% in October. This, alongside softer GDP and employment data, prompted Jerome Powell to backtrack on his statements last month implying that rates may be close to topping out. The effect on equity markets was supportive, dragging the index almost 5% from trough to peak to end the month in positive territory.

Despite these comments, it is still likely that the Fed will raise rates 0.25% in December as implied by the latest Fed ‘dot plot’ (below). This expectation is already priced into markets. We maintain a neutral stance on Fixed Income as an asset class and have held constant our positions in clients’ portfolios.

Source: Federal Reserve

Sources: Bloomberg, Factset Research Systems, Financial Times, J P Morgan, Wall Street Journal, Federal Reserve

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