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ladder against wall

Week in review: Climbing the wall

Despite the familiar line-up of threats and challenges, global markets have made a sunny start to 2019. Neither politicians nor central bankers have resolved any of the main concerns. The US government shutdown continues; the US-China trade talks remain inconclusive; and the outcome of the Brexit process could be a lot clearer. But in spite of this, markets ‘climbed the wall of worry’ this week. Most major indices were comfortably up by Thursday’s close.

It was another wall, however, that dominated U.S. politics this week. Illegal immigration was the focus of President Donald Trump’s Oval Office address on Tuesday. On Wednesday, Trump abruptly left a meeting with Democratic congressional leaders Nancy Pelosi and Chuck Schumer, describing the talks on Twitter as a “total waste of time.” The Democrats had refused to support the use of the federal budget to fund the construction of Trump’s Mexican border barrier.

Hope springs...

The U.S. government shutdown remains in place. But investors appeared to shrug the stalemate off. An earlier Trump tweet–“Talks with China are going very well!”–put wind in the market’s sails, even though three days of negotiations with Chinese officials ended without any resolution.

Optimism grew that the U.S. Federal Reserve might adopt a more cautious path of interest-rate increases this year than previously expected. The minutes of the December Federal Open Market Committee meeting struck a much more market-friendly note than the press conference at the time. Investors appeared to take a favorable view of the switch in tone. By Thursday’s close, the U.S. broader-market S&P 500 Index1 was up 2.6% for the week.

Out of the woods?

The S&P 500’s rally from its December low may have allowed the index to escape the technical correction that it entered when it fell more than 10% from September’s peak. The index is still a long way from a new high, however; it has posted a negative return over the past 12 months.

Although most stocks rose during the week, there were some notable laggards. Google parent Alphabet Inc. registered a slight decline, even as shares of its FANG (Facebook, Amazon, Netflix and Google) peers rose. Additionally, shares of American Airlines slumped after the company reduced its fourth-quarter 2018 revenue forecast.

High-street blues blow over

There was also plenty of bad news from the UK’s beleaguered high street.2 Overall, retail sales in the UK in December were the worst since 2008. Marks & Spencer was among the weakest performers, with falling sales in both its food and clothing divisions. However, the results do not appear to have been as bad as the market had expected, and the company’s shares gained 8.5% over the first four days of the week.

This pattern was replicated with Sainsbury’s. The supermarket operator reported relatively disappointing third-quarter 2018 results and lackluster Christmas sales, but its shares still performed well. Its rival, Tesco, had better news to report, generally beating the market’s expectations in both its third-quarter and Christmas sales. Tesco’s shares were up 9.6% during the week to Thursday’s market close, and the company’s positive results appeared to help its peers to shake off the wintry gloom.

Bubbling up

The strong share-price rallies in the retail sector helped the FTSE 100 Index3 to gain 1.5% by Thursday’s close, despite the ongoing Parliamentary wrangles over Brexit.

The FTSE 100’s performance was boosted by a stronger oil price. Although returns from the oil majors were unspectacular, oil-services company Wood Group’s stock price was up nearly 10% for the first four days of this week. The Brent crude oil price of was over $60 a barrel by Thursday, helping emerging markets to garner a robust performance over the week.

Japan was a star performer for the week. By the end of the Thursday session, the Tokyo Stock Price Index (TOPIX)4 was up 3.5%, boosted by hopes of a resolution to the trade war. European markets outperformed the UK, but trailed Japan and the U.S. The FTSE World Europe ex UK Index5 gained 1.8% as of the market’s close on Thursday.

And finally...

After the spirited excesses of the Christmas holiday, January is traditionally when our thoughts turn to health. Some commit to a daunting “dry January,” and many experiment with new fitness regimes and diets.

That may explain one source of unexpected cheer on the UK high street this month: Greggs’ vegan sausage roll. The bakery chain launched the snack at the start of the month, and a health-conscious public has made it a hit.

But Britain’s newfound appetite for fermented fungus in flaky pastry may not herald a wholesale switch to meat-free living. Greggs reports that sales of regular sausage rolls have risen even as the vegan versions sell out, with disappointed customers settling for the next-best thing. Consumers still seem to care more about sausage than whether it’s made from meat or mycoprotein.

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 High street refers to the concept (and frequently the street name) of the primary business street of towns or cities, especially in the United Kingdom. 
3 The FTSE 100 Index is a market capitalization-weighted index of the 100 largest companies traded on the London Stock Exchange. 
4 The Tokyo Stock Price Index (TOPIX) is a capitalization-weighted index of large- and mid-sized companies listed on the Tokyo Stock Exchange. 
5 The FTSE World Europe (ex UK) Index tracks the performance of large- and mid-cap stocks in developed markets in Europe, excluding the UK.

Important Information

Companies 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.

Foreign securities are more volatile, harder to price and less liquid than U.S. securities. They are subject to different accounting and regulatory standards, and political and economic risks. These risks are enhanced in emerging markets countries.

ID: US-110119-80297-1