Weekly View: With or without you
Back in the ‘eighties, U2 sang "I can’t live with or without you". Similar conflicting sentiments might be affecting some investors today over how much longer the current market upswing can continue. The S&P 500 soared to new highs last week, even though earnings growth remains scarce and there was no clear breakthrough in US-China trade negotiations (which could be an obvious market catalyst). In a nutshell, although equities look expensive at first sight, they look less so when one remembers that interest rates are much lower than a year ago. With some investors fearful of missing out on a continued rally, it thus remains difficult to call a top. A near-term focus will be whether the US imposes additional tariffs on Chinese imports on 15 December. Delaying them in return for more precise commitments from Beijing might be enough to reassure markets—but some real end-of-the-year cheer would come from a deal that rolls back existing tariffs.
Some good news is needed when it comes to China, especially as data last week showed a renewed fall in economic momentum in October. While a closer look at items like property development, car sales and online retail suggests the downturn may have bottomed, the latest slew of figures is pushing out our expectations of a short-term Chinese rebound to about the start of 2020.
Contrasting signals are also to be found in South America. Developments in Bolivia, Argentina and even Chile are a reminder the region often tests investors’ nerves. By accentuating the country’s already profound divisions, the release of Lula da Silva from prison could mean Brazil is added to their concerns. Since important pension reform continues, we are relatively positive on Brazil for the moment. But it is clear that when it comes to emerging markets, one needs to be especially selective. European politics are also a roller-coaster ride. The formation in Spain of a left-wing minority government dependent on regional parties raises questions about the road ahead. Presently, we have a negative stance on euro area peripheral bonds overall.