Noble Apex eNewsletter Issue 793- How to navigating U.S. government policy choice?

2019-01-31 01:42
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28 January 2019 Issue 793

Global Market Commentary


  • US: US President Trump and Congressional leaders have reached an interim agreement to end the US government shutdown crisis. However, the short-term spending bill can only bring Washington back to work for three weeks. For the entire week, the Dow rose by 0.12% to 24,737.20. The S&P 500 index fell by 0.22% to 2,664.76. The Nasdaq rose by 0.11% to 7,164.86.
  • Europe: The European Central Bank announced that it will keep interest rates unchanged, which is beneficial to the European stock markets. In addition, the Brexit still does not have a clear progress, resulting to a fall in UK stock market. Over the week, the UK’s FTSE 100 index fell by 2.28%, the German DAX index rose by 0.68%, and the French CAC40 index rose by 1.02%. The STOXX 600 index rose by 0.22% to 357.84 points.
  • Asia: The Sino-US trade negotiations are progressing well, which is beneficial to the Asian stock markets. Over the week, the Nikkei 225 index rose by 0.52% to 20,773.56 points. The MSCI Asia Pacific Index rose by 0.98% to 154.86 points.


  • US: The International Monetary Fund has cut its economic growth forecast. Capital flows into the bond market, resulting to US Treasury prices rose, and the yield fell. For the whole week, the US 10-year bond yield fell by 3 basis points to 2.746%.
  • Europe: European Central Bank President Draghi’s remarks about economic downside risks has pushed up European bond prices. For the whole week, the German 10-year bond yield fell by 7 basis points to 0.191%.


  • Oil: Both the United Nations and the International Monetary Fund have lowered their economic growth forecasts this year. The market is worried that the economic slowdown will reduce the market demand towards crude oil. In addition, the US Energy Information Association (EIA) estimates that US shale oil output will increase by 60,000 barrels daily in February, which dragged down the oil price. Over the week, New York oil futures fell by 0.65 percent to close at $53.69 a barrel.


  • US dollar: As the US monetary policy becomes to be more neutral, the US economy slowed down and the dollar turns weak. For the whole week, the Dollar Index fell by 0.563% to 95.794.
  • China: Since the US dollar has weakened and Sino-US trade negotiations have progressed well. For the whole week, the yuan rose by 0.191% against the US dollar at 6.736.


Economic-related News

  • US: The US government shutdown crisis was temporarily ended , but the spending bill signed by Trump is only lasted until February 15. Trump threatened that the federal government would be closed again if the constructing wall fee is not being approved.
  • U.S: It is reported that Vice Minister of Commerce Wang Shouwen, Vice Minister of Finance Liao Wei and other Chinese delegations will arrive Washington on Monday to prepare for the Chinese high-level economic and trade consultations with Chinese Vice Premier Liu He this week.
  • U.S: JP Morgan has lowered the 2019 Q1 economic growth forecast on the US to 1.75% from 2% since the partial shutdown of the federal government.
  • U.S: The American Conference Board announced that the US Economic Leadership Index (LEI) dropped from 0.2% increase to 0.1% drop in December of last year, which is similar with the market expectations.
  • Euro-zone: James Slack, spokesperson for British Prime Minister Teresa May, said the government is still discussing options for the Irish backup program and needs to amend the agreement to avoid a non-agreement.
  • Euro-zone: The European Central Bank cut its overall inflation and core inflation expectations in the euro zone, which will reduce the long-term inflation rate in the euro zone by 0.1% to 1.8%. The euro zone’s annual inflation rate will fall to 1.5% this year. In addition, the euro zone’s GDP growth forecast for this year will fall to 1.5%, much lower than the 1.8% increase forecast three months ago.
  • Euro-zone: The EU has increased pressure on Venezuelan President Maduro, saying that if no elections are held within eight days, Juan Guaido will be recognized as the Venezuelan president.
  • Japan: According to the data from the Bank of Japan, the growth of Japan’s corporate service price index slowed down from 1.2% to 1.1% in December, lower than the market expectations.
  • Japan: The Japanese Ministry of Internal Affairs and Communications announced that Tokyo’s consumer price index (CPI) rose by 0.4% year-on-year in January 2019, which was higher than the market expectations.
  • Singapore: The Singapore Economic Development Board announced that Singapore’s industrial production rose by 2.7% year-on-year in December, lower than the market’s expectation of 4% increase.


China Market Commentary
Economic-related news
• The State Council of China appointed Yi Huiman as the chairman of the China Securities Regulatory Commission. The former chairman Liu Shiyu was transferred as the party secretary of the All-China Federation of Supply and Marketing Cooperatives.
• China confirmed its intention to initiate negotiations on trade-related e-commerce issues on the basis of the WTO.

How to navigating U.S. government policy choice?

While tax cut initiatives in 2018 provided a tailwind for U.S. markets, 2019 policies can add to uncertainty and risk. Market have been stabilized so far in January because investors seem to be realizing that recession in 2019 is unlikely. The S&P 500 index is up 5.4% in 2019 and more than 13.5% from the December low.

Economic fundamentals and Fed policy support the market. Nonfarm payrolls surged by 312,000 in December, and the unemployment rate rose 3.9% as more workers joined the labor force. Although wages jumped 3.2% from a year ago, different members of Fed still turn to dovish. Because of increased financial market volatility, rising short-term interest rate, and elevated trade and political uncertainty, the economic outlooks seem to be less optimistic.

Market remain vulnerable to uncertainty

Will this optimistic market environment last? It could, but I see U.S. policies as the biggest wild card that could unsettle market in the next few months. The policies can weigh heavily on consumer sentiment and spending, which are the keys to the health of U.S. economics this year.

Government shutdown is the latest key concern for the market. Donald Trump proposed an immigration deal at 19th Jan in a bid to end a partial government shutdown. This is the first real offer for an end to government shutdown. However, Democrats reject Trump border wall proposal. They insisted Trump needs to open government before any negotiations over border security or barrier funding. Although Trump signed the provisional spending bill last Friday, the longest government in the history of the United States officially ended. If Congress and Trump can not reach a further agreement in the next three weeks, the US government may shut down again in mid-February.

So far, the shutdown has been viewed by investors as political chaos and has not much impact on the markets. But the longer it goes on, the more it could hurt the economy and consumer confidence. We can see the Michigan consumer sentiment index fell a sharp 7.6 bps to 90.7 in January. Tax cut effect seems to fade away.

University of Michigan Consumer Sentiment Index

Data Source: iFund; Bloomberg

Trade deal bias to positive result

The outlook on trade negotiations looks more positive as the deadline approaches. Based on the Bloomberg quoting from people familiar with the matter, China proposes to increase the annual import U.S. goods by more than 1 trillion in six years, with a view to eliminating trade surplus with the U.S. by 2024.

However, China and U.S. have not been able to make progress on intellectual property issues so far, and this may be a key point in determining whether Trump can finally finalize the agreement with China. On the other hand, some damage has already been done. Supply chain disruptions and profit pressure on consumer electronic companies need some tome to improve.

We expect political uncertainty will remain elevated all year. So valuation of U.S. market can not recovering to the prior highs. We also emphasizing diversify allocation in 2019, especially emerging market, which benefit from China’s recovery and an improvement in trade relations.


領航投資(Vanguard)創辦人、指數投資之父博格爾(John Bogle)上周離世,香港媒體報道不多,只有兩份財經報紙較大篇幅(半版)報道,實有愧香港所謂國際金融中心的美譽。博格爾是金融業的殿堂級人物、基金界巨人,今天普羅大眾都可以低成本投資基金,要多謝博格爾的堅持…..



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