Monthly review end-November 2019

  • 06 December 2019
  • 5 minutes

Conservatives poll lead

Politics continued to dominate investor sentiment across the world in November. In the UK, the Conservatives opened a significant lead in opinion polls as the general election loomed. This gave investors hope for a degree of clarity and stability in both domestic politics and the future of the UK’s relationship with the European Union.

The UK avoided recession

In the meantime, there was some positive news from another source. The latest round of economic data showed that the UK had managed to avoid a recession by posting a modest rate of economic growth over the three months to the end of September. Add to that the promises that the various political parties are making about increased spending, and investors ended November in cautiously optimistic mood. This was reflected in a solid 2.2% rise in the FTSE All Share Index over the month.

US-China trade deal inching closer

The feeling was similarly hopeful elsewhere, especially with rising prospects of the US and China inching towards a preliminary trade deal. This hope came despite the US Congress passing a bill that supported Hong Kong’s pro-democracy supporters. Beijing reacted with predictable disdain but the proximity of a trade deal seemed largely unaffected.

Solid US economic growth

Strong growth by the US economy added to the mix, helping the benchmark S&P 500 stock index to post a 3.6% gain over the month. Companies with greater sensitivity to overall optimism, particularly technology stocks, rose the most.

Upbeat European industrial data

The feel-good factor also lifted stocks across Continental Europe. As well as the effects of international trade hopes, investors’ spirits were buoyed by industrial data that indicated an improved outlook for the region’s various industrial sectors. Newly appointed head of the European Central Bank, Christine Lagarde, continued the themes of her predecessor, Mario Draghi. She indicated her support for low interest rates and other stimulative measures while urging governments in northern Europe (notably Germany) to increase public spending.

Spanish few

While all those positives were going on, a scene familiar to UK investors played out in Spain. The country’s latest general election led to a hung parliament and accompanying uncertainty.

Bonds reflected optimism

Ultimately though, it was a positive month, as could be seen from activity within bond markets. The demand for and price of lower-risk rated bonds fell, reflecting the preference among investors for higher-risk opportunities that they hoped would deliver higher returns. As the price of a bond falls, its yield rises; yields in benchmark government bonds across Europe and North America rose.

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