November was an interesting month for the economy and financial markets, as policy started to shift on the global stage. The markets have performed better-than expected this year, but will the backdrop support this momentum in 2018?
Global economic data continued to look decent in November, as the world economy outperforms most predictions for the first time since 2010.
Europe performed well, with inflation under control, and rumours of a Brexit deal caused the pound to strengthen as the month drew to a close.
Shifting policy backdrop
November was a busy month for global policy. In the UK, Brexit negotiations seemed to finally start taking shape, with progress seemingly being made on the divorce bill and Irish border issue. This progress seemed to unwind ahead of an important EU summit in mid-December – causing the pound to weaken.
In America, Jerome Powell has been nominated as the new Chairperson of the Federal Reserve. He’s widely seen as a continuity candidate and monetary policy is expected to continue along the same path, with a slow and gradual increase in interest rates set to try and dismantle the boom-and-bust economic cycle.
A more significant shift was seen in the progress of US tax reform – where Trump has been trying to slash corporate tax to 20% and introduce some individual tax relief. The final numbers are yet to be put to paper, and it’s likely Trump will be happy to make some concessions to get the reform passed as quickly as possible.
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The question is whether these reforms will pay for themselves as some Senator’s argue, by stimulating economic growth. Or will they merely increase the deficit due to a plummet in tax revenue. This tax reform has implications for the Fed’s monetary policy tightening schedule, too.
Markets have performed better than many had expected in 2017, with stronger economic growth and historically low levels of volatility underpinning good equity returns.
The strong momentum behind the global economy and financial markets needs to continue if markets are going to remain supported in 2018.
Moneyfarm portfolio performance
During November, performance of the Moneyfarm model portfolios ranged between -0.2% and 0.5%.
Geopolitical nerves caused a strong performance at the beginning of the month to unwind slightly, and global markets (MSCI World) ended up 20 basis points higher in sterling at the end of the month.
Emerging markets followed this trend and handed back some of the gains they had made after a solid start to the year.