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WEEKLY MARKET ROUND-UP – 17/1/20

Signed on the dotted line…

With the much-trumpeted ‘phase 1’ trade deal scheduled for signing on Wednesday morning (15 January) in Washington, stock markets enjoyed a wave of optimism this week. The Trump administration also decided to lift its designation of China as a ‘currency manipulator’ and China’s yuan rallied close to a six-month high.

A damp squib…

Not surprisingly, US Treasury Secretary Steve Mnuchin hailed the signing as an “enormous win” for the US. However, few suggested that the deal came close to addressing the original reasons for the 18-month old conflict, namely China’s unfair company subsidies, its wilful ignorance of copyright laws and its generally predatory tactics for capturing tech supremacy in areas such as 5G, AI and driverless cars.

‘Phase 1’ neatly skirts all of these issues, but it does commit the Chinese to buying 50% more US agricultural goods than it’s managed even in the best of times – c$40bn a year worth – as well as a nebulous promise to buy $200bn of other US stuff in the coming years.

Nevertheless, the deal helps de-escalate a conflict that has retarded global growth, hurt US manufacturers and further burdened an already slowing Chinese economy.

Under ‘phase 1’, the US dropped plans to impose tariffs on an additional $160bn of Chinese imports and it halved the existing tariffs on a further $110bn of Chinese goods to 7.5%. That still leaves about two-thirds of all Chinese imports and half of US imports to China mired, with the average US tariff rising from 3% in January 2018 to 21% now.

Such tariffs have also narrowed America’s trade deficit with China, which Mr Trump claims to be a major win.
 

Dropping a dime…

In the US, the fourth quarter reporting season got underway on Tuesday (14 January) as three of the biggest US banks JPMorgan, Citigroup and Wells Fargo, traditionally viewed as bellwethers for the US economy, shared their latest results.

As Quilter Investors head of trading Maz Alamouti observes, “JPMorgan’s results hit estimates out of the park; fourth-quarter profit rose 21% far exceeding earning per share (EPS) estimates as revenue from its bond trading business surged almost 90%. Meanwhile, Citigroup earnings similarly beat on better-than-expected trading results and the strength of its card business thanks to a robust US consumer market.”

“Shares in both banks took off on Tuesday,” he says, “but Wells Fargo wasn’t so lucky; it saw Q4 profits plummet 50% as legal fees and low US interest rates weighed it down. The shares were off some 4.5% in afternoon trading.”

Hong Kong battles recession

The chief executive of Hong Kong, Carrie Lam, has confirmed the authorities will provide HK$10bn ($1.7bn/£1bn) of relief measures to help support the economy after it fell into recession for the first time in a decade last year.

The economic downturn follows months of anti-government protests, initially concerning a now-withdrawn extradition bill, which escalated into violence forcing businesses to shut and tourism numbers to decline.

Hong Kong’s economy shrank 3.2% in the third quarter of 2019 as the authorities said domestic demand worsened significantly as the “local social incidents” weighed on consumption and investment sentiment.

The additional spending brings the total stimulus promised since the protests started escalating in the summer of 2019 to $4.5bn.

A whimper not a Bang

Luxury Danish TV and audio company Bang & Olufsen (B&O) reported a second quarter loss as revenues fell 31%.

The business is known for its high-end items, including the Beovision Harmony TV that can cost around £16,000. However, it admitted revenue declined “more than expected” as a result of fewer product launches and the transition to a demand-driven retail model.

B&O also cited increased competition in the earphones and headphones markets, with earphone revenue down 38%.

However, CEO Kristian Teär, who was appointed in October 2019 in the wake of B&O’s third profit warning, said despite the falling revenue, changes to sales and marketing had been implemented, which combined with upcoming product launches would “contribute to improving our results” ahead of a three-year strategy announcement in April 2020.

If any article in this market update has an effect on your finances and you would like professional advice, then please get in touch.

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