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It was quite a year for the global financial markets, with never a dull moment seeing the U.S. majors hit record highs before hitting bear territory late in the year, the year culminating in the Dow Jones seeing its worse Christmas Eve on record and its best single-day gain in history.
With U.S. President Trump active on the political arena and a number of central banks looking to move towards monetary policy normalisation, there were some sizeable swings in the global equity markets through the year and some material moves in the commodities and currency markets to keep investors guessing as we enter the New Year.
While there were many events that influenced, there were some that shook the financial markets throughout the year. The most notable were:
U.S. – China Trade War
One of the main areas of focus for the U.S. President has been traded, with imbalances and a ballooning trade deficit an issue for Trump. Enemy number one is and always has been China and there was no mincing of words, with the roll-out of tariffs and retaliatory measures hitting the global financial markets hard through the year.
During the peak of the rhetoric and ahead of the actual rollout of tariffs, which became sizeable over the year, the Yen hit a year-to-date high ¥104.74 on 23rd March.
Reintroduction of sanctions on Iran
The U.S. President withdrew from the multi-national nuclear agreement with Iran on 8th May, with crude oil sanctions rolled out on 4th November.
Hopes of a pull-back in global output saw WTI hit 2018 high $76.41 before the decision by the U.S administration to approve waivers to sanctions on Iran crude oil exports to 8 countries. Concerns over an oversupply glut saw prices fall to 2018 low $42.53 on Christmas Eve.
Italian General Election
On 1st June, a second populist government took control in Europe, this time of the World’s 8th largest economy, anti-establishment Five Star Movement being joined by the far-right League. Market fears eased following the coalition government’s decision to conform with the E.U’s budget rules, but only after a period of confrontation.
Year-to-date, the FTSEMIB is down 16.15%, with a combination of geopolitical risk and economic woes weighing on Italian stocks.
From foe to friend: The first-ever summit between a U.S President and a North Korean head of state took place on 12th June. An agreement to denuclearise resulted, but it was touch and go ahead of the Summit, with a war of words impacting the markets in the early part of the year.
While there was no broad-based market rally, the very fact that a North Korean and U.S President have sat face to face is worthy of mention.
The NAFTA Rebrand
Trade talks between the U.S, Mexico, and Canada could have gone more smoothly, with an eventually morphed version of NAFTA being agreed on 30th September. The year-long negotiations culminated in the U.S – Mexican – Canadian trade agreement (USMCA).
In spite of the agreement, a slide in crude oil prices, the roll-out of sanctions earlier in the year on aluminum and steel, and weaker economic indicators have led to a more cautious Bank of Canada, leaving the CAD down 8.46% year-to-date against the USD. Initial moves saw the CAD recover to C$1.28 levels, in response to the agreement, before sliding to C$1.36 levels.
Following the surprising Presidential Election Victory, the Republicans took a step back in the mid-terms, with the loss of the House of Representatives, bringing Trump’s 4-year road plan to an abrupt end, ultimately leading to an end of year government shut down, the U.S President attempting to force the Democrats to hand to deliver funding for the ‘Wall.’
While there was no mass market panic stemming from the largely anticipated result, the next 2-years will certainly deliver plenty for the markets to consider, the current government shutdown just a taste of things to come.
After almost 18 months of wrangling and negotiations, on 25th November the E.U. and Britain came to an agreement on the terms under which Britain will leave the E.U. in March of next year. Extended negotiations did not come without some significant fallout, members of the Conservative party resigning, with British Prime Minister Theresa May surviving a vote of no confidence. It’s not over yet, with the parliamentary vote on the deal due to take place on 14th January 2019.
The GBP tumbled to a 52-week low $1.2487 in December, having hit a 52-week high $1.4339 back in April, the decision to delay the parliamentary vote on the Brexit deal delivering the GBP’s current year low.
The Trump-Powell Flare Up
The Dow Jones Industrial Average experienced its biggest Christmas Eve fall in history, the sell-off coming off the back of news reports that President Trump was looking to fire FED Chair Powell following the FED’s decision to lift rates at the December meeting.
The Dow Jones fell to 2018 low 21,712.53 before enjoying its largest single-day gain ever on the very next trading day on news that Trump does not have the authority to remove the FED Chair.
The biggest name in the auto industry, who headed the Mitsubishi-Nissan-Renault alliance, was arrested on 19th November on reports of under-reporting salaries. The auto industry mogul is accused of under-reporting income by as much as $44m.
The news led to Nissan and Mitsubishi shares falling by 6.5% and by 6.9% respectively on the 20th, with Renault’s shares falling by 4.8% on the day.
The Facebook Tumble
Facebook saw $120bn of its market cap wiped out in a single day back in July, the largest single-day loss in corporate history. The reversal came in response to the Cambridge-Analytica privacy scandal that snowballed, as investors and users discovered the use of social media to influence outcomes of, not only the 2016 U.S Presidential election but also the UK’s EU Referendum.
Facebook’s 2018 low $123.02 represented a 43.7% slide from its July high $218.62.
Huawei and the World of Espionage
On 1st December, Huawei CFO and deputy chair Meng Wanzhou was arrested in Canada, reportedly at the request of the U.S. administration, on charges of contravening U.S sanctions on Iran.
It has yet to become clear how the arrest will be used in the resumption of trade talks between the U.S and China in early January, but fears of the arrest getting in the way of any progress have weighed since the arrest, with the NASDAQ down by more than 10% in December.
The arrest and China’s reactions to the arrest have certainly not helped the CAD, which is down 2.6% against the U.S. Dollar for the current month.
U.S – China trade talks will certainly be interesting when you throw in accusations of spying and the banning of Huawei products in a number of markets.
Journalist Khashoggi’s murder
On 2nd October, Saudi journalist Khashoggi was murdered in the Saudi consulate in Istanbul. After some initial denials, the truth came out and Crown Prince MBS was implicated, though the U.S President was willing to let bygones be bygones due to the support given within the region.
While not of a material impact on the global financial markets, things could have been far worse for the global equity markets had Trump not made the decision to give MBS a pass.
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