2019 is about to end and we can start summing up a year that, despite a very unstable political and financial situation, has all in all "kept its value" and, indeed, is preparing to close even higher. Good for investors and for those who, despite the caution needed to navigate such times, were rewarded for their "belief".
Growth despite the problems: why?
The reason for the constant growth, despite the open questions of Brexit and the US-China trade war, has to do above all with the liquidity support policies decided by the American and European central banks, and with a certain amount of recovery in industrial investments that has led (at least in the US and in the strongest countries of the Eurozone, such as Italy, France and Germany) to a slight but steady increase in employment. Even the profits of major companies, despite not growing, have also not fallen, remaining essentially flat. This, paradoxically, is actually good news, at least in situations of great uncertainty such as we have seen in recent months.
The S&P 500 has increased by 3.6% in terms of total return, bringing its return since the beginning of the year to over 25% and putting it on the right track for its best performance of the calendar year since 2013.
Even with regards to the Italian FTSE MIB index, the numbers are good: the year closes with + 18, 45% and the same is true for the European EuroStoxx50 index which closes at + 16% on an annual basis.
A nice haul, especially if you think that the omens for this year were almost universally bad.
Looking to 2020: the good signs...
It is a good sign that investors, although they remain cautious, are optimistic about a possible forthcoming trade agreement between the US and China which, hopefully, will avoid a further increase in tariffs, or even lead to their reduction (we will know more on December 15).
In Europe, even more than in the USA, things have taken a cautiously positive direction, especially after the elections of last May that served to hold anti-European forces in check, whose influences were greatly feared by the markets. According to an analysis published by JP Morgan, “Business in Europe was mostly better than in previous months, with the perceived easing of trade tensions. Eurozone consumer confidence has improved and there has been better news across the manufacturing sector. "
… And the less good signs
Less promising signs come from China which, due to both the trade war with the US and the Hong Kong street riots, is undergoing somewhat of a setback in its (almost) unstoppable growth: industrial production has grown by 4.7% on an annual basis, which is a very good figure overall, but which disappoints the expectations of investors, who expected growth of more than 5%.
Retail sales also "only" grew by 7.2% year-on-year, compared to a pace closer to 8.5% in the first half of 2019.
Signs to keep an eye on
The first: Brexit
For now, there are two major events that need keeping an eye on. The first concerns the United Kingdom, the infinite Brexit issue and the possible effects it could have on international markets. After the British general election on December 12th we should know more (ideally) than we do now, and we will know what the new parliament will look like.
If there is a solid Conservative majority then the likelihood of a “hard” Brexit is very much on the table (probably without an agreement – the scenarios that all investors fear the most).
If, instead, the Conservatives lose their tenuous majority then Brexit could face yet more extensions, negotiations, and even perhaps a new referendum. This scenario is more likely whether the Labour left take a clear majority, or whether either the Lib Dem or Labour parties obtain a sufficient number of votes to create a hung parliament.
The Second: Aramco
Another development upon which the markets are looking with interest, is Aramco's IPO: Saudi Arabia's state oil company, and the largest and richest company in the world (estimated value of 2,000 billion dollars, double Apple, just to give you an idea).
Its debut on the world markets had been planned for the previous few weeks, but then a sudden change of program meant that it was only listed on the local market. However, the question is still open and its possible impact on the world's finances is still to be evaluated.
The third: the famous Trump impeachment.
Finally, 2020 will be a year of looking to American politics (which we will discuss in more detail in the coming months). By the End of the Year we should know if his presidency will be suspended by the Congress. If so, we will be watching an unprecedented sequence of events (both Andrew Johnson, in the late 1800s, and Bill Clinton were tried by Congress, but neither were dismissed). Most likely the Republican majority in the Senate will protect its president and acquit him, but it is inevitable that the process itself will have an undeniable effect on the markets.