The recovery in global markets year-to-date has been as extreme as the sell-off at the end of 2018. At one point in December, the S&P 500 Index had declined 15.7% intra-month. The S&P 500 has rallied 11.1% YTD and almost 20% since the Christmas eve low. It is the second-best annual start for US markets since 1987.
Markets have been driven by optimism that the US and China will resolve their differences and agree to a trade deal after President Trump extended a March 1st deadline.
Additionally, the US Federal Reserve (Fed) has shifted away from a gradual interest rate hiking cycle to a more cautious wait-and-see approach. As it stands markets are pricing in no interest rate hikes from the Fed this year, as well as a trade agreement. This has set markets on fire but does raise the risk of a sharp correction in stocks if the aforementioned does not play out.
Chinese markets have surged over 20% year-to-date for the same reasons as above, however, China has more to lose in the trade war, hence the greater rebound in Chinese stock markets.
European markets have also rallied this year, although Brexit concerns are weighing heavy on sentiment. In the U.K., the opposition Labour Party has confirmed it would support a second referendum on membership of the European Union, while Prime Minister Theresa May has agreed to allow Parliament to delay Brexit, which many analysts say raises the chances that the nation’s withdrawal from the bloc will be put off past the March deadline.
On the commodities front, Brent crude oil ended February with a 6.7% gain (at $66/bbl) as production cuts by OPEC and Russia supported prices.
GLOBAL INDICATORS: Local reporting currencies