July 2019 Market Update: G20 Summit - A much needed booster relief
Market Snapshot
G20 Summit – A much needed booster relief
Following a month of dismay in May, investor sentiments have improved markedly since June on the back of the positive outcome of the G20 summit in Osaka as well as hopes of a Fed rate cut in late July.
The S&P500 broke above the 3,000 level on July 10th and closed at all–time high of 3,002.41. Since May 31, it has rallied close to 9% and in line with our 2H2019 market outlook that a weak May normally heralds a strong June to August period. However, it is still too early to count on it given the increasingly volatile markets.
The much anticipated G20 summit in Osaka concluded with significant progress on US–China relations after US President Donald Trump offered concessions, including no new tariffs and an easing of restrictions on Chinese tech giant Huawei in a bid to reduce tensions with Beijing. However, no deadline was set for progress on a deal, and the two sides remain at odds over significant parts of the agreement.1
China economy falters but no major stimulus needed
The Caixin/Markit Purchasing Managers' Index shrank unexpectedly in June and at its slowest since January, but no 'big' stimulus will be needed in China unless trade war worsens, says a PBOC adviser. Chinese leaders have set a growth target of 6 – 6.5% for 2019 and the likelihood of keeping GDP over 6% remains high.2
Interest rate cut in the works?
July 30–31 are the next key dates to watch as the Fed gathers for its quarterly policy meeting where the decision to maintain or cut interest rates will be on the top of its agenda. Earlier, the Fed signalled rate cuts could come soon partly due to uncertainty caused by the trade war, a slowing global economy as well as businesses putting off spending domestically until China and the United States reach a lasting truce.
Markets are overwhelmingly betting on the Fed's next move to be its first rate cut since the global financial crisis a decade ago. Disappointing rate–cut expectations could also come at a cost of roiling markets and hurting the economy.3
How are commodities faring in this late–cycle?
Gold —
Following an impressive June, where the yellow metal rallied close to 9%, near term momentum has turned negative on the back of easing geopolitical tensions following the positive outcome of the G20 summit. However, gold's long–term outlook remains supported around the $1,400 level and every dip presents Gold Bulls with opportunities to accumulate.4
Oil —
Oil prices have come under renewed pressure in recent months over concerns of a weakening global economy and from rising U.S shale oil production as producers hit a monthly record of 12.16 million barrels per day in April. Meanwhile, OPEC+ agreed to extend oil supply cuts until March 2020 to prop up the price of crude.5
Embrace the new normal
Contrary to what our header suggests, while G20 is truly one of the most important forum of global governance and cooperation, research done by Duca & Stracca have found that G20 summits have not had a strong, consistent and durable effect on performance of global financial markets.6
This cycle of tensions and truce between US and China looks set to continue as the two major powers grapple with global supremacy and investors need to recognise that this may be the new normal in the years to come, even decades ahead.
What this means for the long-term investor is to stay diversified and continue to accumulate on the dips.
So start exploring close to 1,000 funds using our intuitive fund finder and start your no-fees investing journey with us on dollarDEX.
YOU MAY ALSO LIKE
Disclaimer
All information here is for GENERAL INFORMATION only and does not take into account the specific investment objectives, financial situation or needs of any specific person or groups of persons. Prospective investors are advised to read a fund prospectus carefully before applying for any shares/units in unit trusts. The value of the units and the income from them may fall as well as rise. Unit trusts are subject to investment risks, including the possible loss of the principal amount invested. Investors investing in funds denominated in non-local currencies should be aware of the risk of exchange rate fluctuations that may cause a loss of principal. Past performance is not indicative of future performance. dollarDEX is affiliated with Aviva but dollarDEX does not receive any preferential rates for Aviva products as a result of this relationship. Unit trusts are not bank deposits nor are they guaranteed or insured by dollarDEX. Some unit trusts may not be offered to citizens of certain countries such as United States. Information obtained from third party sources have not been verified and we do not represent or warrant its accuracy, correctness or completeness. We bear no responsibility or liability for any error, omission or inaccuracy or for any loss or damage suffered by you or a third party (including indirect, consequential or incidental damages) arising in any way from relying on this information.
This information does not constitute an offer or solicitation of an offer to buy or sell any shares/units.
This article has not been reviewed by the Monetary Authority of Singapore.
Information is correct as of 12/07/2019.