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Week in review: bordering on obsession?

  • 15Feb 19
  • Craig Hoyda Senior Quantitative Analyst, Multi-Asset Investing

It may have been Valentine’s Day this week, but Shakespeare was right when he said that the course of true love never did run smooth. U.S. President Donald Trump is certainly encountering plenty of bumps along the road to obtaining one of his heart’s desires—a physical barrier on the U.S.-Mexico border.

Democrats and Republicans in the U.S. House of Representatives agreed on a bill to provide funding for U.S. border security, avoiding another government shutdown. Crucially, however, it provides less than a quarter of the $5.7 billion that Mr Trump wants to spend on building a wall. Asked how he felt about the deal and before giving it his official seal–presumably without a “loving kiss”–of approval, his response was “…not happy.” On Thursday, February 14, as Congress also ratified the funding deal, he announced plans to declare a national emergency. If the declaration stands (it may be challenged in U.S. courts and Congress), it could be used to divert funds and resources to the barrier.

Over the week, one of the biggest influences on U.S. equities was the progress of trade talks between the U.S. and China in Beijing. On Tuesday, President Trump hinted that he might allow negotiations to continue past the end of this month. Then, tariffs on around US$200 billion of Chinese imports to the U.S. are set to be raised from 10% to 25%. We think that it is important to note that the U.S. broader-market S&P 500 Index1 is up almost 20% since its low on Christmas Eve 2018—there is already some good trade news in the price. Elsewhere, the surprise revelation that December’s U.S. retail sales had declined at their fastest pace in nearly a decade also capped gains on Wall Street. Overall, the S&P 500 Index gained 1.4% for the week to the close of the market on Thursday.

May’s bloody Valentine

The UK’s FTSE 100 Index,2 meanwhile, climbed 1.8% for the week through Thursday. But there was little love lost in UK politics. UK Prime Minister Theresa May suffered another blow as members of Parliament again voted to reject her Brexit plans. The result of the vote has no legal implications. Nevertheless, it will be even more difficult for Mrs. May to convince her European Union (EU) counterparts that her exit strategy has enough Parliamentary support behind it to carry. Jeremy Corbyn, leader of the Labour Party, said Mrs. May should “admit her Brexit strategy has failed.” However, a spokesperson for May’s administration stated that Mr. Corbyn was voting to “make no deal more likely.”

Growth slows, but European profits impress

Political commentators were quick to blame Brexit for slowing UK economic growth of just 0.2% year-over-year in the fourth quarter of 2018. Business investment was down, but the absence of growth in the EU (currently still the UK’s largest trading partner) and slowing growth in China are more likely explanations, in our view. On Thursday, a report revealed that Germany barely avoided entering recession in the fourth quarter, recording 0% growth. Up until then, European equity investors had been enjoying news of generally strong corporate earnings. Dutch brewer Heineken toasted better-than-expected operating profits of €3.8 billion (roughly US$4.3 billion), partly due to better sales in emerging markets, and predicted higher demand for expensive drinks.

Tobacco company Swedish Match also appeared to have struck lucky, as its share price lit up after investors took a favorable view of the company’s plans for U.S. expansion. Overall, the FTSE World Europe (ex UK) Index3 was up 1.8% through the close of the market on Thursday.

And finally …

Had enough of saccharine sentimentality? Thoughts turned from romantic gestures for the one you love to petty acts showing your contempt for the one that got away? If so, you need look no further than the Wildlife Images Rehabilitation Center in Oregon. The Center’s staff has spawned an excellent idea for fed-up former lovers. In exchange for a $20 donation, they will purchase a salmon, name it after your ex, and then feed it to their brown bears. Proving that news of the scheme is no red herring, they’ll also provide you with a special certificate and photographic evidence of the bears’ meal. Thus far, there has been no indication of how many people have taken the bait.

1 The S&P 500 Index is an unmanaged index considered representative of the U.S. stock market. Indexes are unmanaged and have been provided for comparison purposes only. No fees or expenses are reflected. You cannot invest directly in an index.

2 The FTSE 100 Index is a market capitalization-weighted index of the 100 largest companies traded on the London Stock Exchange.

3 The FTSE World Europe ex UK Index tracks the performance of large- and mid-cap stocks in developed markets in Europe, excluding the UK.

Companies are mentioned for illustrative purposes only and should not be taken as a recommendation to buy or sell any security. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list.

International investing entails special risk considerations, including currency fluctuations, lower liquidity, economic and political risks, and differences in accounting methods; these risks are generally heightened for emerging market investments. Stocks of small and mid-cap companies carry greater risk, and more volatility than equity stocks of larger, more established companies.

ID: US-150219-83139-1