On the economic front, much of the focus was on the Federal Reserve which, having raised rates throughout 2018, reversed their view in 2019 and cut interest rates three times during the year. Whilst this was welcomed by investors, it was clear that the cuts reflected concerns about US growth prospects. Concerns that were heightened in the first quarter when short-term rates moved higher than long-term rates. This yield curve inversion has historically preceded a recession.
It was not just the US that suffered with signs of slowing growth. The Chinese economy experienced its worst growth in nearly three decades, prompting both the government and the central bank to take steps to support the economy. Some of the slowdown can be attributed to weaker trade because of the US-China trade war which began in 2018. To date, the US has applied tariffs of around $500 billion on Chinese exports; China in turn has imposed $185 billion worth of tariffs on the US.
Europe was also afflicted by growth concerns. Italy moved into recession at the beginning of the year while Germany, the largest economy in Europe, narrowly avoided doing so during the year. However by the third quarter, the economic outlook was sufficiently negative that the central bank opted to introduce a number of growth-supportive measures. Europe also remains at risk of becoming involved in its own trade war with the US. Duties have been imposed upon European steel and aluminium exports, while the automobile industry is widely viewed as the next to be at risk.
The UK was also not immune to fears around growth, but did just manage to avoid recession. No interest rate cuts were forthcoming however, as the central bank appeared optimistic that global growth would stabilise and a Brexit deal would eventuate. The year was defined by an ever shifting Brexit timeline and narrative, with the country undergoing a change in prime minister, a general election and three extensions of the Brexit deadline.
Asset class returns in 2019
MSCI World U$ - Total Return Index
ICE BofA Global High Yield Index - Total Return Index Value
US Benchmark 10 year DS Govt. Index - Total Return Index
ICE BofA Global Corporate Index
Source: Schroders. Thomson Reuter Refinitiv data correct as at 31 December 2019. Total returns form MSCI World Index, BofA Global High Yield Index, BofA Global Corporate Index and US 10-year Treasury priced in dollars. Past performance is not a guide to future returns.