Equity markets ended a remarkable 2019 rally on a strong note with major stock indexes reaching fresh all-time highs. Investors favored riskier assets following declining trade tensions and easing geopolitical headwinds. UK and emerging markets, specifically China, Russia and Latin American, led the December rally, while the US along with other developed markets lagged the MSCI ACWI. Developed markets outperformed emerging markets overall in 2019.
The global economy slowed in 2019 and is now growing below trend. This was primarily driven by the trade war weighing on capital spending and the lagging effect from monetary tightening in 2018. We expect global economic growth to pick-up in 2020 as monetary easing begins to feed through.
Major central banks left policies unchanged in December. After a wide ranging series of rate cuts throughout 2019, policy makers have been pausing easing efforts to evaluate the effect of prior rate cuts. Officials indicated that monetary policy may have reached its limits and are considering greater use of fiscal policy as a tool to manage business cycles and support economic growth.
Geopolitical risks faded after the US and China reached a preliminary trade agreement. Also, Brexit uncertainties fell after Prime Minister Boris Johnson’s Conservative Party obtained a solid majority in Parliament. The UK parliament has passed a withdrawal agreement and will start the exit process at the end of January 2020. Markets looked past the political turmoil in the US, where a deeply divided House of Representatives passed two articles of impeachment against President Trump. However, macroeconomic stress related to tighter financial conditions in Argentina, geopolitical tensions in Iran, and social unrest in Hong Kong, Venezuela, Libya, and Yemen still persisted.
Mercer's Monthly Market Monitor provides an overview of global financial markets.
In this issue we cover: