All central bank liquidity or improved outlook too?
Following the brief wobble after the escalation in tensions between the US and Iran, the risk appetite that drove the substantial stock market rally towards the end of last year has returned. With yet another good week in stock markets, full year return projections of a number of 2020 outlook reports by well regarded investment research institutions will looked stretched even before we reach the end of the first month.
Unsurprisingly, parallels are being drawn with January 2018, when stock markets were storming ahead with similar levels of upward momentum, touching very similar relative valuation levels, and looked just as over-extended in the US. That particular upward surge ended very quickly, as stock markets took fright from rising bond yields, leading to an overall disappointing year for investors – with the exception of the US.
Bank of England to cut interest rates
The retail sales report for December was out on Friday 17th January (here). December 2019’s sales value was 3.5% above that of December 2018. Unfortunately, the relatively recent phenomenon of Black Friday (and Cyber Monday) distorts the run of data, depending on when the surge happens in the month. Dec-2019’s data included Black Friday, Dec-2018 didn’t. Adjusting as best they can, the Office for National Statistics said sales value (not including fuel) increased a meagre 1.1% year-on-year. Even online sales were anaemic.
Some of this slow pace of sales value growth is down to low inflation. Core (excluding food and energy) price growth fell to just 1.3% year-on-year last month, well below the Bank of England’s 2% target. That does not bode well for retailers’ results, as low inflation may well be a sign they have been forced to cut their margins.
US – China trade deal, more than a truce?
At long last, the US and China have put pen to paper on a trade deal. This week, the world’s two largest economies have signed phase one of what negotiators – and global investors – hope will be a comprehensive and long-lasting agreement. Wednesday’s signing ceremony was mostly a formality, with the interested public already aware of the agreement for a few weeks. But it did give President Trump and Liu He, China’s top trade negotiator, a politically useful photoshoot inside the White House. In the unveiling of the 86-page document, Trump was typically boastful: “This is the biggest trade deal anybody has ever seen.”
Shhhh It’s Private – Private equity insight
During the heady days of the 1990s, the ultimate signal of start-up success was the initial public offering (IPO) of new shares at the stock exchange, rewarding founders, giving companies a new round of capital and announcing their arrival to the big-time. Roll forward to 2020 and the sound of the bell ringing is a lot quieter. Companies are snubbing public markets in favour of private funding.
According to data firm Dealogic, just 34 companies applied to be listed on the UK stock market over the last year, the lowest number since 2009. The amount of money raised from British IPOs was just over half the previous year, coming in at £3.7bn. At the same time as new listings are declining, more and more publicly listed companies are being taken off the market and turned private (see chart on next page).