Heading as we are to potentially the worst monthly December performance for US equity markets since the 1930’s it would be easy to think that we could well be heading for further heavy declines.
The truth is we’ve become spoilt over the last nine years by markets that have steadily gone higher without too much of a correction, and the prospect of further tightening of monetary conditions will mean that investors will have to be much more discerning about where they put their money as we head into 2019.
In a sense it’s been fairly easy since 2009, with a few notable exceptions, to put your money in any old dross and for valuations to go higher. This period now appears to be passing and a new generation of investors and fund managers will now need to get used to the idea that markets can fall just as quickly as they rise.
This months’ declines look set to see European equity markets to not only finish this year lower, and post the worst annual performance since 2007, but also to see the annual gains from 2017 disappear as well.
European markets have had a mixed open this morning, taking their cues from a similarly mixed US and Asia session. The Nikkei 225 fell sharply below the lows seen earlier this year, led by Japanese banks over concern that looser monetary policy will likely erode their ability to meet revenue targets for 2019.
UK car manufacturing output saw a 20% fall in November the biggest fall since 2008, following on from similar sharp falls in Europe. While it is easy to blame Brexit uncertainty, the main reason is down to weaker demand across Europe and China, as well as a sharp fall in sales due to tough new rules around diesel emission standards. Automakers are all lower with Toyota shares down 3%, while Daimler, Volkswagen (DE:VOWG_p) and Porsche also lower.
Interserve (LON:IRV) shares have jumped sharply on the back of an agreement between the company and its lenders to a debt for equity swap. As expected existing shareholders will face a material dilution as the senior debt gets converted into new shares. Some of the new equity will be offered to existing shareholders through a public offering. Furthermore the company has agreed to defer a payment due on 1st February 2019 to 30th April 2019.
The key question remains as to whether this new restructuring arrangement finally draws a line under the problems that have dogged the company since the collapse of Carillion almost a year ago.
Vodafone (LON:VOD) shares have declined after the company announced that it was looking for new auditors to replace Price Waterhouse, who are taking Vodafone to court as part of a legal dispute over the collapse of Phones4U a few years ago.
UK consumer confidence for December showed a further decline to its lowest levels since 2011, however if things are looking gloomy in the UK, they are little better in France where the economy is also struggling. Q3 GDP slipped back to 0.3% from 0.4%, while consumer spending in November slid 0.3%.
UK Q3 GDP was confirmed at 0.6% while public sector borrowing for November rose from a revised £5.6bn in October, to £6.3bn.
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