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Turnaround?; US economy slowing but not stopping; Gold and real yields; Huawei, 5G and the US-China trade war.

Turnaround?

The first month of 2019 is over already and the new year has brought quite a remarkable turnaround for investors compared to the last month of 2018. Global equity markets have recovered to the tune of 7%, but most other asset classes have done so as well which is just as rare as was last year’s return dearth across the board.

After taking in the January 2019 asset returns as per our regular table below, UK investors are forgiven to suspect Brexit shenanigans to be responsible for having missed out.  The opposite is the case:  £-Sterling has risen on the back of optimism for a softer Brexit amongst international investors and this increase in the pound’s purchasing power abroad makes up the difference.

US economy slowing but not stopping

Capital markets have ended January feeling positive. But that’s probably not in response to improving economic data; it’s probably because of the response to the response. In a press conference, Federal Reserve chair Jerome Powell appeared far more dovish   (i.e. not inclined to raise interest rates further) than before, calming fears that liquidity would run dry as monetary policy tightens.

After the Fed left interest rates unchanged, Powell’s language suggested to markets that the central bank’s move could either be up or down – a far cry from last month’s suggestion of a further two rate hikes this year.

Gold and real yields

There’s no doubt that refined gold is attractive. Its immutability is probably the thing which ensures its hold on us. It will outlast each and every one of us, and can be passed on after we’re gone. A standard rectangular 1kg gold bar is only about 117mm by 53mm by 8.7mm (4.5 inches by 2 inches by 3/8 inch).

A typical shoe box full of gold would be worth over £3.75 million. It would weigh over 116kg! (1st Feb 2019: £32,516/kg). Having it does not require a small army to patrol its borders, although it would require a lot of effort to move it.

Huawei, 5G and the US-China trade war

Those who follow the news find one company regularly cropping up in the US-China trade war: Chinese telecom equipment giant Huawei. Although not often directly mentioned, Huawei is a key player in the rollout of next generation 5G mobile networks worldwide.

On the surface, cars, soy beans and other physical products garner most of the headlines in the US-China trade war. But there’s a deeper battle here. Underneath trade concerns is an arms race to see who will get control of next generation technology.

Cambridge Weekly Update 4th February 2019

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