Market Update

What an eventful week it has been! Who could argue that politics is boring? While Brexit has undeniably been at the forefront, rather than rehashing the news, it's crucial to place recent events into context.
The outcomes of the Westminster votes – the EU Withdrawal Bill and the vote of no confidence in the UK Government – played out as expected, resulting in minimal fluctuations in both the pound and the UK equity market. These results, however, have significantly diminished the likelihood of a no-deal Brexit. As I pointed out six weeks ago, the prevailing opposition among MPs against a no-deal scenario indicates a probable softer Brexit or even no Brexit at all.
This week has underscored the near inevitability of extending Article 50, delaying our exit past March to allow MPs time to forge a consensus. Despite the tumult in the UK, globally, there were noteworthy speeches from Fed officials.
Minneapolis Fed President Neel Kashkari emphasized the absence of evidence supporting further US interest rate hikes. He stressed the need for strengthening wages and inflation before considering additional rate increases. Esther George, President of the Kansas City Fed, advocated for a rate pause, allowing time to assess the impact of prior increases on the US economy.
Given these signals, it wouldn't be surprising if this marks the peak of the US interest rate cycle. Even if the Fed does raise rates once or twice more, it's evident that this tightening cycle is nearing its end, making it one of the mildest in history. A halt or slowdown in US tightening should buoy equity markets, alleviating concerns of a potential over-tightening-induced recession.
Furthermore, optimism grew this week regarding a potential US-China trade deal. China reportedly pledged to increase imports from the US to eliminate the trade surplus by 2024. US Treasury Secretary Steven Mnuchin discussed lifting tariffs on Chinese imports, fostering hopes of a resolution.
In summary, despite the unease stirred by news coverage – a sentiment we all likely share – our focus remains on the positive long-term fundamentals: global economic growth coupled with controlled inflation, a true Goldilocks scenario. As I've stressed before, and it remains particularly relevant this week: trading based on news headlines is never wise.
Looking ahead, the upcoming week will host the World Economic Forum in Davos, Switzerland, the ECB and BoJ monetary policy meetings, Chinese economic data releases (GDP, retail sales, and industrial production), and UK employment data (unemployment rate and weekly earnings). Stay tuned for what promises to be another eventful week in the world of global finance.