Financial Bulletin – December 2019


The UK General Election campaign got under way during November with some commentators arguing it is the most important election for decades.

Given that the Labour manifesto advocates sweeping economic changes, the Pound strengthened on the release of some polls pointing towards a Conservative majority.

It was a quiet month where Central Banks are concerned, as neither the US Federal Reserve nor the European Central Bank had a meeting.

However, it was less quiet in terms of economic news as there were tentative signs that the world economic outlook may be improving.

Business activity in the US accelerated, whilst the Eurozone manufacturing sector contracted at a slower rate.

In contrast the UK economy continues to struggle under the weight of uncertainty, although a technical recession was avoided.

Over the last 6 months the FTSE 100 gained around 2.3%, whilst the Euro Stoxx 50 and S&P 500 gained around 12.2% and 14.1% respectively (all in price terms). 

The broad Emerging Markets index fared less well than many of its developed market counterparts and returned 3.1% (in US$ price terms).

The Japanese Nikkei 225 gained approximately 14.1% (in price terms).

UK government bond yields ended the month approximately flat, but have been volatile in the face of political uncertainty.

US Economic News

During October there were provisional signs that the slowdown in the US economy may have reached a nadir, and this trend continued through November.

The latest surveys suggested that the services sector grew at the strongest rate since the summer, whilst the manufacturing sector improved at the strongest rate since the start of the year.

Moreover, after two months of job cuts, firms took on more workers during November.

The numbers will likely please the Federal Reserve, which has cut interest rates three times this year in an effort to arrest the slowdown.

However, even though the US economy may have turned a corner, it still looks quite fragile.

Businesses’ expectations for the future remained subdued, most likely as a result of the uncertainty surrounding the ‘trade war’ between the US and China.

In this regard, President Trump continues to offer conflicting signals; on some occasions suggesting a deal is close but on others suggesting tariffs will soon be raised substantially. 

UK Economic News

The UK General Election campaign kicked-off during November, with the Conservatives and Labour offering very different policies for the country.  

By the end of the month the opinion polls were still suggesting a Conservative majority, though with many political commentators claiming the result is difficult to predict.

The election adds further uncertainty for businesses and consumers on top of an already subdued economy.

In November the deterioration in the manufacturing sector worsened, with both the domestic and overseas markets weakening.

Employment within the sector fell at the steepest rate since 2012.

There is evidence that the weakness within the manufacturing sector has spread to other parts of the economy in recent months.

Retail sales rose by 3.1% in the year to October, but this was significantly less than analysts expected.  

Nevertheless the UK did manage to avoid a technical recession by growing by 0.3% in the third quarter of the year.

Moreover, as in previous months, the labour market continued to be a source of strength as the unemployment rate fell to 3.8%, and the employment rate remained at an historically high level.

Average wages continued to grow in real terms, although the pace of wage growth has slowed slightly since the summer.

The Bank of England kept interest rates on hold during November, though it was notable that two members of the committee disagreed with that view.

Eurozone Economic News

The Eurozone economy remained close to stagnation during November, though there were some provisional signs of improvement.

Whilst the manufacturing sector is still contracting, the rate of contraction eased slightly compared to previous months. 

This was particularly true of the largest manufacturing country, Germany, where business optimism regarding the future improved.

The German economy narrowly avoided falling into a technical recession during the third quarter of the year.

However, after months of worrying about the manufacturing sector, the services sector is now coming under pressure.

Although still growing, the sector is estimated to be improving at the weakest rate since the start of the year and employment growth is faltering.

Christine Lagarde has not yet overseen her first policy meeting as President of the ECB.

Investors will be looking on to see if there is any change in policy or process at the start of her term.

Wider Economic News

The outlook for Chinese manufacturing looked brighter during the month as a closely watched survey suggested the strongest rate of improvement since 2016.

Interestingly, despite the ongoing ‘trade war’ between the US and China, China’s manufacturing exports rose.

However, President Trump’s decision to back protesters in Hong Kong may well have set back the trade negotiations.

Elsewhere, the Japanese manufacturing sector deteriorated even further and production contracted for the eleventh month in a row.

The Japanese economy grew by just 0.1% in the third quarter of the year, less than most analysts had expected.

Financial Markets and Corporate News

Whilst the world economy remained subdued, many of the world’s stock markets made eye-catching returns over a 6 month period.

Over 6 months the FTSE 100 gained around 2.3%, whilst the Euro Stoxx 50 and S&P 500 gained around 12.2% and 14.1%, respectively (all in price terms).  

Japan’s Nikkei 225 returned approximately 14.1% (in price terms).

The broad Emerging Markets index fared less well than some of its developed markets counterparts and returned  3.1% (in US$ price terms).

Bond markets have generally been driven higher by lower interest rates over the last 6 months.

UK Gilts have been volatile on the back of political uncertainty, whilst 10 year US Treasury bond yields have fallen to levels last seen since 2016.

The Investment Association (IA) UK Gilts sector returned 3.46%, the IA Corporate Bond sector returned 4.34%, whilst the Sterling High Yield sector returned 4.01%.

Summary of Key News:

  • The UK General Election got under way.
  • The UK economy remained weak but avoided a recession.
  • The US economy improved marginally.
  • The Eurozone showed only tentative signs of a turnaround.
  • The Chinese manufacturing sector picked up.
  • The Japanese economy remains in the doldrums.  

Financial Markets:

  • Over 6 months the FTSE 100 gained around 2.3%, whilst the Euro Stoxx 50 and S&P 500 gained around 12.2% and 14.1%, respectively (all in price terms).
  • The Nikkei 225 gained approximately 14.1% (in price terms).        
  • The broad emerging market index gained 3.1% (in US$ price terms).
  • The IA UK Gilts Sector returned 3.46%, compared to 4.34% for the IA Corporate Bond Sector, and 4.01% for the IA Sterling High Yield Sector.         


Despite some signs that the world economy may be past the worst of the slowdown, most regions of the world remain fragile, and Central Banks have relatively little fire power left.

On top of this, some analysts are sceptical that company earnings can grow at the same pace they have in recent years.   

All of these factors make it harder for global equities to keep reproducing eye-catching returns.

The attention of many investors has turned to governments and whether they increase spending in a bid to boost their respective economies.

If governments do begin to open their purse strings it could well add to inflationary pressure, and completely change the dynamic of the last decade.

In the UK, investors will have to contend with more political uncertainty as the year draws to a close.

As the Labour Party is advocating significant changes to the UK economic model, we can expect volatility in UK assets should the opinion polls narrow.