Hitting pause: Wait-and-see mode for Fed, markets and Brexit

On the latest edition of Market Week in Review, Director of Client Investment Strategies Mark Eibel and Head of AIS Business Solutions Sophie Antal Gilbert discussed recent market performance, the latest on Brexit and the U.S. Federal Reserve (the Fed)’s minutes from its 30 October meeting.

Trade uncertainty keeps markets relatively flat

Markets were largely flat to slightly down the week of 18 November, Eibel said, due in part to the latest headlines around trade. "Any trade-related news moves markets these days, especially when there’s not much economic data to focus on," he remarked, noting that the Dow Jones Industrial Average slumped mid-week after pessimistic news over a potential phase-one trade deal between the U.S. and China was reported.

Eibel also emphasised the importance of placing recent market performance in a broader context, noting that U.S. equities in particular have posted a very strong fourth quarter so far. "Markets have essentially taken a bit of a pause over the last few days, after steadily advancing since the beginning of October," he said. Eibel added that the ongoing U.S. impeachment inquiry continues to have little to no impact on markets.

The calm before the storm? Brexit likely to move markets again in December

Turning to Brexit, Eibel noted that the long-running saga over how the UK should split from the European Union has been put on a bit of a back burner for now. "Brexit has entered a relatively quiet period of late, ahead of the UK general election on 12 December," he explained.

Eibel believes that once the calendar flips to December and the election draws closer, markets will become more sensitive to the latest Brexit headlines. "Brexit will likely become much more of a market mover in the next two or three weeks," he said, "but right now, the state of the manufacturing sector is the primary driver for European markets."

Fed minutes show rate pause likely to continue into 2020

Switching to monetary policy, Eibel said that the Fed released the minutes from its October policy meeting on 20 November. The minutes solidified the consensus view among markets that the Fed is likely to keep interest rates unchanged for the next few months. The U.S. central bank appears comfortable to stay on the sidelines and see how China-U.S. trade negotiations play out before taking any potential action, he explained.

"At Russell Investments, our view is that the Fed probably won’t make any adjustments to monetary policy through the first six months of 2020," Eibel stated. He added that U.S. President Donald Trump and Fed Chairman Jerome Powell held a closed-door meeting on 18 November, discussing everything from interest rates to inflation. "Nothing of substance appears to have come out of this meeting, and markets responded accordingly - by not really moving much in either direction," Eibel noted, adding that Trump and Powell will likely remain at odds over their views on monetary policy and the role of the Fed.

"All in all, whether it’s Fed policy, Brexit or the relative lack of market movement, it seems appropriate to cast the week of 18 November as a week of pause," he concluded. Market Week in Review will also pause next week in observance of the U.S. Thanksgiving holiday, Eibel noted, returning in early December.

Any opinion expressed is that of Russell Investments, is not a statement of fact, is subject to change and does not constitute investment advice.