10 Things Investors Need To Watch In Q4 2018

1. Global trade negotiations 

The US and China held fresh, and largely fruitless, trade talks in August. The dispute is likely to be prolonged, and persist beyond the US midterm elections in November. The US implemented tariffs on $50 billion of Chinese imports in two stages in July and August, and China responded with duties of equal measure.

2. Brexit talks 

The UK government published in July its long-awaited white paper, outlining plans for exiting the European Union (EU). Since then it has started to outline the measures that it is taking to prepare for the possibility of a “no deal” Brexit. The formal EU summit on 17-18 October is seen as the deadline for a withdrawal agreement. This is to allow sufficient time for both the UK and European parliaments to approve it. Should a deal not be reached in October, the EU has indicated that November is the latest month in which a deal could be agreed. However, another EU summit is timetabled for 13-14 December which on paper would appear to be the final chance for a deal to be agreed. Much uncertainty therefore remains over the timing and nature of any final agreement, or indeed whether an agreement will be reached at all.

View from RB – Gillian Shirt, Technical Manager:

“Despite the uncertainties created by Brexit and fears of a trade war, there remains pockets of value within the UK market. Investment Managers continue to focus on these lowly-valued areas in the market where they feel there is potential for positive change in the years ahead.”

3. Federal Reserve policy

The US Federal Reserve’s interest rate setting committee is scheduled to convene on 25/26 September, 31 October, 7/8 November and 18/19 December. Current expectations are for a 25 basis points (i.e. 0.25%) increase in policy rates at each of its September and December meetings. However, the focus is shifting to 2019 and at what level the Fed decides to pause.

View from RB – Simon Shorthouse, Associate Director:

“The Fed is already indicating that it is thinking about how much further interest rates need to rise. Once the peak is in sight markets could shift significantly as the period of dollar strength will draw to a close. In this respect it is possible that the Fed will have finished raising rates before the European Central Bank and Bank of Japan have even started.”

4. Japan’s LDP to hold leadership election – 20 September

Prime Minister Abe has recently confirmed that he will stand in his Liberal Democratic Party’s leadership election in September. Should Mr Abe be re-elected leader, it would be his third straight term, making him Japan’s longest serving prime minister. He is expected to comfortably defeat his only challenger, former defence minister Shigeru Ishiba.        

5. Italian budget announcement – draft likely by end September (talks with EU in October)

Italy’s new government is expected to put forward its budget proposals in the coming months. A small stimulus appears to be the most likely outcome. Should bolder spending plans be included, this would likely trigger a dispute with the EU.

6. Brazil general elections – 7 October

It has been a busy few years in Brazilian politics, following the impeachment of second term president Dilma Rousseff in 2016. Former vice-president Michel Temer took the reins but despite some initial success in driving through reforms, these have stalled amid allegations of corruption. A two round system is used to elect a president, unless a single candidate receives more than 50% share of the vote in the first round. A second round would take place on 28 October.

7. US second stage sanctions on Iran take effect – 4 November

Following President Trump’s decision to withdraw the US from the 2015 Joint Co-operative Plan of Action (JCPOA) back in May, the US is re-imposing sanctions on Iran in two stages. The first round took effect on 6 August and included measures which prohibit the purchase or acquisition of US dollar banknotes by Iran’s government, as well as trading in commodities such as gold, steel and coal. The sanctions that the US plans to impose from 4 November include the prohibition of petroleum-related transactions with the National Oil Company among others.

8. US midterm elections – 6 November

In November, voters across the US get their first opportunity to show their opinion on President Trump’s administration since his election in 2016. Midterm elections see all of the 435 House of Representatives seats and 34 of the 100 Senate seats come up for election. The President’s Republican Party currently hold a majority in both houses of government, but these elections have historically been negative for the ruling president’s party.

9. European Central Bank policy

The European Central Bank’s rate setting committee, the Governing Council, is scheduled to meet on 13 September, 25 October and 13 December. It has previously announced plans to wind down its quantitative easing programme by the end of December. It has also provided guidance for interest rates to remain on hold until the third quarter of 2019, unless there is a major change in economic conditions.

10. Bank of Japan policy

Japan’s central bank will hold interest rate policy meetings on 18/19 September, 30/31 October and 19/20 December. Owing to lower-than-expected inflation, it recently made small tweaks to its policy, contrary to previous speculation that it could effectively tighten policy (i.e. remove some of its stimulus measures). It also stated that the current low rate policy would be maintained for “an extended period of time”, meaning no change to policy is currently expected in the next few months.