Entering a new decade, and looking back at 2019 it is easy to see that the year was filled with geopolitical tension, primarily due to the ongoing U.S. - China trade-war since 2018. Subsequently key macroeconomic indicators slowed, as Trumps tough on China stance put pressure on both developed and emerging market economies.
U.S. Annual GDP-growth rate
E.U. Annual GDP-growth rate
Japan Annual GDP-growth rate
China Annual GDP-growth rate
Germany Annual GDP-growth rate
U.K. Annual GDP-growth rate
France Annual GDP-growth rate
As fear spread across global markets, materialising in higher volatility, markets anticipated rate cuts in 2019 by the FED as a precautionary move, which can be displayed by the increases in probabilities for different interest-rate levels for July 31th (unfortunately data for the July 31th announcement is lacking*), September 18th and October 30th.
The FED responded by lowering the interest-rate from 2.5% to 1.75% as a stimulatory move, in order to alleviate market concerns of the spreading of a sluggish economy, represented by declining YoY GDP-growth into the unemployment and inflationary figures.
At the time, the FED was heavily criticised both from Trump (for not lowering rates even further*) but also by several scholars, as the unemployment rate and core inflation being at healthy levels.
U.S. Core Inflation Rate
U.S. Unemployment Rate
The trade-war also affected the ECB, which resumed its bond-buying programme, indefinitely, at the September 12th meeting in order to provide additional stimulus in conjunction with the already lowered interest rate.
1) The interest rate on the deposit facility will be decreased by 10 basis points to -0.50%. The interest rate on the main refinancing operations and the rate on the marginal lending facility will remain unchanged at their current levels of 0.00% and 0.25% respectively. The Governing Council now expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.
(2) Net purchases will be restarted under the Governing Council’s asset purchase programme (APP) at a monthly pace of €20 billion as from 1 November. The Governing Council expects them to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates.
Fortunately, the U.S. and China agreed to a phase 1 trade-deal, during October, which coupled with the FEDs interest rate decreases materialised in lower volatility and higher trending equity markets. Tomorrow both leaders of the U.S. and China are poised to sign the phase 1 trade deal which will also reveal minute details surrounding the agreement.
Whilst, there were grave concerns of a pending recession due to the flattening of the yield-curve when interest rates were higher, this concern has now diminished significantly due to the lower rates environment we are currently in.
Despite turmoil in the markets, East Invests flagship funds, consisting of the America Value Fund and the Europe Value Fund have been delivering returns of a 18.21% CAGR (America Value Fund) and 33.27% CAGR (Europe Value Fund) since 2018.
Performance of each analysis since it was written at East Invest for respective funds can be viewed below;
America Value Fund