While the market expectation was for a small Conservative win going into the election, the size of the majority led to a relief rally in both Sterling and UK equities. Investors had been concerned about the possibility of a hung parliament and a continuation of the indecision and uncertainty of the last three years. Furthermore, the prospect of a Labour nationalisation programme and higher taxes meant many investors, both domestic and international, have been waiting on the side-lines. Following the result on Friday, UK equities rose strongly, with the more domestically focussed FTSE 250 index climbing over 4%, reaching an all time high.  Boris Johnson has now set himself a target of agreeing the new trading relationship with the EU by the end of 2020. The prospect of not reaching an agreement by this date will continue to weight on sentiment, however, a successful outcome will lead to further gains for the pound as well as UK equities. Fortunately, this next cliff edge is now a full year away.

US-China Trade Deal

One tweet from Donald Trump last week sent global equity markets up over 1%. The tweet suggested that the China and the US were close to completing an interim trade deal and importantly that both countries wanted to see it signed. The announcement comes shortly before the latest round of tariffs from the US come into force. Little is known of the actual detail and the deal, however, a delay to the US tariffs being implemented is likely to be on the cards. In turn, China are expected to increase the level of imports from the US in an attempt to decrease the bilateral deficit. While such an agreement will be seen as a good thing by the markets, it will not the resolve the longer-term issues between the two countries. Problems around technology transfer and access to the Chinese economy for US companies are unlikely to be resolved any time soon.

Federal Reserve holds interest rate

The December meeting of the Federal Reserve led to no change to the US interest rate, with the committee holding it steady at 1.75%. The move was largely expected, following the guidance by the Fed that it did not intend to cut further unless there was a deterioration in the state of the economy. The strong rate of jobs growth, steady inflation and GDP figures did not provide any incentive for action. Looking out over the coming year, the market is not expecting that there will be another series of rate cuts, with the most likely scenario being no change. However, the risks are skewed to the downside and if there is a slowdown in the US economy, the Fed will take action.

Market Data