Stocks hit record high for the first time since 2018


The removal of tariff uncertainty will return investor focus to signs of an improving global economy
Chief Investment Office13 Dec 2019
Photo credit: AFP Photo


US

Global stocks hit a record high for the first time since early 2018 and bond yields climbed after news that US President Donald Trump signed off on a trade deal with China averting tariffs set for Sunday (15 December). Ten-year Treasury yields jumped the most in three months. Futures on the S&P 500 Index saw modest gains as trading started in Asia.

The removal of tariff uncertainty will return investor focus to signs the global economy is improving as a strong year for risk assets heads toward a close. Thursday’s (12 December) gain in American stocks pushed the MSCI All-Country global benchmark of shares to a record high.

The deal presented to Trump by trade advisers Thursday included a promise by the Chinese to buy more US agricultural goods, according to people familiar with the matter. Officials also discussed possible reductions of existing duties on Chinese products, they said. The terms have been agreed but the legal text has not yet been finalised, the people said. – Bloomberg News.

On Thursday, the S&P 500 increased 0.86% to 3,168.57, the Dow Jones Average inched up 0.79% to 28,132.05, and the Nasdaq Composite added 0.73% to 8,717.32.

 

EUROPE

A key part of the European Central Bank’s (ECB) deliberations on how to reach its inflation goal will be to consider how prices are measured, President Christine Lagarde said.

The institution’s new chief emphasised on Thursday (12 December) that inflation is experienced in many ways. While the ECB aims to keep it just below 2% over the medium term, policymakers should consider taking a range of indicators including market-based measures, household surveys, and housing prices into account when gauging their progress, she argued.

“Markets have their own assessments and measurement for that, households have a different perception,” Lagarde said in her first policy update. “We need to look at all of them. We need to look directionally where it’s heading” but “we will have to look at how it is disaggregated as well, as part of our deliberations”.

Numerous economists have argued that conventional inflation metrics overlook consumers’ biggest expenses such as shelter. Lagarde’s predecessor, Mario Draghi, was seen at times as being too focused on expectations in financial markets.

She took over leadership of the ECB in November and has pledged to launch a strategic review next month, covering a broad spectrum including the institution’s price-stability aim and how it can help combat climate change. – Bloomberg News.

The Stoxx Europe 600 Index gained 0.33% to 407.58 on Thursday (12 December).

 

JAPAN

A dramatic turnaround in semiconductor stocks has been the hottest theme in Japan’s stock market this year, and it may just be the tip of the iceberg.

Advantest Corporation is the Nikkei 225 Stock Average’s runaway winner for 2019, up almost 150% with a couple of weeks remaining. After languishing well into the summer, the stock took off in the second half, helped by expectations for 5G communications technology. A similar rebound was seen in chip equipment peers Tokyo Electron Ltd and Screen Holdings Co Ltd, which are also in the Nikkei’s top 10 best performers.

Technology gains have helped boost one of this year’s best performing large funds focused on Japan. Fidelity’s Japan Growth Fund is up 27%, beating 96% of its peers and outpacing the Nikkei’s 255 17% advance.

The chip equipment makers were all in the top 10 gainers again Thursday (12 December), along with silicon wafer maker SUMCO Corporation. A trade show taking place this week in Tokyo is just the latest tailwind.

“Semicon Japan taking place right now seems to have re-energised semi names, as the recovery prospects for next year are firming up,” a market strategist said in a note. “Memory, which has been the missing piece, is showing good signs of bottoming out, led by data centre growth but also promise of higher density LP-DDR DRAMs and NAND for 5G smartphones going into next year.”

Chip stocks have been the leaders in the US this year as well. Peers got a boost overnight as Bank of America Corporation said Apple Inc’s expected 5G iPhone will be a positive catalyst for chipmaker Qualcomm Inc, a customer of SUMCO, Advantest, and Tokyo Electron.

The World Semiconductor Trade Statistics predicts the chip market will rebound from a decline this year to 6% growth next year, to USD433b, according to a report. While global trade conflicts and the 2020 elections in the US pose potential risks, the market outlook remains bright. – Bloomberg News.

The benchmark Nikkei 225 Index increased 1.55% to 23,787.07 at the open on Friday (13 December), extending Thursday’s 0.14% gain to 23,424.81.

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