Cambridge Weekly recipients will have already seen our comment on the election outcome on Friday and so we will not rerun those comments here – please refer to the email from Cambridge Investments Ltd which you should have received shortly after noon.
After a wobbly start to the last month of the year, sentiment has improved over the last week and not just on the decisive UK election outcome. Boris Johnson has the necessary majority to end the prolonged period of Brexit uncertainty that has held back business activity and much needed business investment. However, this still means that the UK will create some distance between it and its nearest and largest trading partners. We can expect an initial economic activity bounce, spurred by pent up business investment, but the longer-term perspective on post-Brexit Britain will depend on its future relationship with the EU.
We go into the end of the year with almost a mirror image of where we were at the beginning. At the fractious end of 2018, there were flickering signs that global economic growth was set to slow. Capital markets decided to take these signs as warnings of the oncoming apocalypse: asset valuations sunk to levels that implied a global economic recession was imminent, as risk appetite seemed to evaporate. We wrote then that such excessive pessimism presented a buying opportunity – as economic data was middling but not miserable. We were right: global growth did indeed slow throughout the year, but only to the lethargic levels we have mostly become accustomed to in the post financial crisis era. When investors realised the end was not nigh, risk sentiment returned and markets rose (aided by a generous dose of central bank liquidity).