Optimism is spreading

11.12.2019
Equity markets reached new highs in October – driven by good news and a surge of expectations among investors.

October saw a broad-based hope that the U.S. and China would actually be able to conclude a so-called phase one trade deal despite the cancellation of the APEC meeting in Chile, where this deal was supposed to be concluded, because of the social turmoil in the country.

China appears to be willing to lower tariffs on part of the U.S. agricultural products, but a subsequent phase one trade deal cannot be expected to contain any notable measures such as a roll-back of existing trade barriers or tariffs. Most commentators merely consider a so-called phase one agreement a halt to the current, protracted escalation of the conflict between especially China and the U.S.

Apart from the prospects of a phase one trade deal, U.S. equity investors have benefitted from a so-called "mid-cycle" interest rate cut. The Federal Reserve opted to lower the Fed Funds Rate to only 1.75 percent at the end of October. This is remarkable as the U.S. economy may well have lost momentum over the past year, but the unemployment rate is still very low – albeit the unemployment rates of several states have started to pick up – and the inflation outlook is still relatively close to the targeted 2 percent.

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