Market Update

Positive signs emerged in the US-China trade talks as China reduced tariffs on imported American cars from 40% to 15%, generating optimism in the market. Additionally, Canada granting bail to Wanzhou Meng, Huawei's Chief Financial Officer, added to the positive sentiment. President Donald Trump's openness to intervening in Meng's case to facilitate a deal with China further bolstered confidence. Although a resolution in the US-China trade dispute is distant, the progress made indicates a trajectory toward a potential trade deal, setting a positive tone for risk appetite in the upcoming year.
In the US, consumer price index (CPI) inflation decreased from 2.5% to 2.2%, while the core CPI, excluding volatile items like food and energy, rose to 2.2% from 2.1%. The uptick in core CPI aligns with expectations for a US interest rate hike during the upcoming Fed meeting on December 19, 2018. However, considering the downside risks to the inflation outlook, including the significant decline in oil prices since October, there is no urgency for the Fed to substantially raise interest rates in 2019.
In the UK, Prime Minister Theresa May survived a confidence vote among Conservative MPs, but the risk of a Parliamentary vote of no-confidence remains, especially as her attempts to negotiate better terms with the EU face challenges. Brexit's outcome is increasingly binary, leaning towards either a no-deal Brexit or no Brexit at all, as indicated by recent votes against May's proposals. The European Court of Justice ruling this week, allowing the UK to unilaterally revoke Article 50, further complicates the situation. There is also a possibility of a snap election, which might be May's best chance to gain approval for her withdrawal agreement, albeit with the risk of a Jeremy Corbyn-led government, which could unsettle financial markets.
In Europe, the European Central Bank (ECB) decided to conclude its quantitative easing (QE) program. However, ECB President Mario Draghi, similar to the US Fed, adopted a dovish tone, citing concerns over geopolitics, trade protectionism, and market volatility. This cautious stance was reflected in updated economic projections that lowered expectations for inflation and economic growth.
Please note that as market news typically slows down during the holiday season, our next Weekly Market Summary will be on Monday, January 7, 2019. We will promptly provide a Market Update if any major changes or events occur in the meantime.
Wishing you the best for the festive season and the year ahead.