December rounded off what ended up being a poor year for global markets. In fact, 2018 has been the worst year for global markets since the annus horribilis of 2008. At the end of years like this, it’s important to remember that saving and investing is for the long term. Bad years inevitably happen once in a while.
Good news was in short supply this month. Service sector growth fell to its lowest level in over two years, house price growth stagnated and Gatwick – the UK’s second largest airport – was brought to a standstill during one of the busiest times of year by a malevolent drone.
The British government is now preparing for the very real possibility of leaving the EU without a deal. Brexiteers were unimpressed by Theresa May’s deal, while many remainers will see voting against the deal in the mid-January vote as a way of forcing a second referendum on membership to the EU.
The FTSE 100 fell by 4% during the month, down to 6,728. The stock index started the year at 7,688, meaning it fell by a total of 12% during the year. Britain’s markets were lashed by a double whammy of Brexit uncertainty and poor performance in the global markets.
The French yellow jacket protests dominated the headlines across the Channel in December. Protestors took to the streets en masse, concerned by the President’s lack of care about the lives of ordinary people. Emmanuel Macron eventually caved in to their demands, buying off the protesters with an increase in spending that could increase the French deficit to between 3.5% and 4% of GDP.
This was against a backdrop of slow growth in the Eurozone. The German and French stock markets had awful months in December. The German DAX index was down by 6% to 10,559 and the French index fell 5% to 4,731. The German Dax fell by 18% during 2018, putting the FTSE’s bad year into perspective.
There was a time where many people in finance might have thought, ‘whatever you think of Trump’s politics, the markets seem to love him’. This no longer holds true – in December his public fallouts drove waves of uncertainty that shook global markets.
The Fed, concerned about inflation, raised US interest rates to 2.5%, the highest level for a decade. Trump proceeded to have a very public falling out with Jerome Powell, the Federal Reserve chairman, which did little to calm already worried investors. He then shut down the US government after the divisive vote for Trump’s most recent budget, which included funding for his $5.7 billion flagship “border wall”, didn’t make it through congress.
US markets had an awful month. The Dow Jones fell by a massive 9%, falling to 23,327. This made December 2018 its worst December since 1931.
The rest of the world
The Far-East’s major stock markets were all down in December. The Shanghai Composite index fell 4% to 2,494 while Japan’s Nikkei Dow index fell 10% during the month, with a 5% fall on a single day. In Hong Kong, the markets had a ‘less bad’ month, falling just 2%.
Markets in emerging economies avoided the heavy losses suffered by some of the more prominent stock indexes. The Russian market fell just 1%, Brazil 2% and the Indian stock market ended the month relatively unchanged.
We hope next month’s market commentary makes for slightly ‘lighter’ reading. Whether markets will recover remains to be seen.