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2019: a year in charts

Eight charts highlighting some of the biggest financial stories of the year
December 19, 2019

 

1. American dream

Both the S&P 500 and the Dow Jones Industrial Average notched up record highs this year, led by swings in the US-China trade war. US stocks rallied in 2019 with three consecutive rate cuts by the Federal Reserve, mostly better-than-expected corporate earnings and a number of significant takeovers – including LVMH and Tiffany (£12.6bn) and Charles Schwab and TD Ameritrade ($26bn). But the rising proportion of stock-based M&A deals, which has reached its highest level in almost 20 years, could be a signal of possible late-cycle behaviour. 

Some investors are nervous that the stock market is due for a correction and many expect higher levels of volatility in the new year as the presidential election looms ahead. President Trump has been celebrating gains in US equities as a success of his leadership – but a recent survey (conducted by the Financial Times and the Peter G Peterson Foundation) suggests that almost two-thirds of Americans believe that the Wall Street rally has had little or no impact on their personal finances.

 

2. Sterling rallies behind Tories 

After a turbulent year for sterling, the pound rose to its strongest level against the dollar since May 2017 following the Conservative victory in the general election. Ultimately the pound’s rally reflects investors’ relief over the prospect of a relatively smooth withdrawal from the European Union. But there are still challenges ahead – namely securing the UK’s trade agreement with the EU during the transition period, which expires at the end of 2020. Prime Minister Boris Johnson wants to rule out any extension to this.

Long-term economic uncertainty would increase the chance of a rate cut by the Bank of England, which would weigh on the currency and prop up UK gilts. That is not to mention a downbeat economic backdrop – UK GDP flatlined in the three months to October 2019 and investment into the UK is continuing to fall, according to OECD data.

 

3. ESG grows

Environmental, social and governance (ESG) investing has often been regarded, rather sceptically, as a way to satisfy investors’ consciences rather than generate strong returns. But this year investing in ESG picked up the pace, especially as teenage environmentalist Greta Thunberg dominated headlines across the world. Flows into US open-ended and exchange-traded sustainable funds attracted more than $4bn in each of the first three quarters in 2019. These funds are producing results: the CDP (formerly known as the Carbon Disclosure Project) found that the Stoxx Global Climate Change Leaders Index outperformed the Stoxx Global 1800 by 5.4 per cent per year from December 2011 to July 2018. But there are still challenges that lie ahead, not least the lack of standardisation of what constitutes a legitimate ESG company. Sustainable funds are usually designed to recreate the performance of broad market indexes while including the highest ESG-rated companies in each sector – rather than exclude environmentally harmful sectors, such as oil and gas. This so-called ‘greenwashing’ could skew the impact of ESG in coming years unless it is regulated soon.

 

4. New negative norm

What was once a Japanese singularity is now the new normal. This year there have been central bank rate cuts around the world and a handful, including the European Central Bank, have pushed their benchmark interest rate below zero. The global value of government and corporate bonds trading at negative yields hit a record $17 trillion at the end of August. The US Federal Reserve too has reduced its interest rates by a quarter percentage point three times this year, though not into negative territory. 

President Trump has repeatedly attacked the Fed, urging its chairman Jay Powell to push rates below zero and to follow the lead of the ECB and Japan. But the American central bank warned it would pause its easing monetary policy unless the economic outlook improves.

 

5. Deutsche dives 

Deutsche Bank had a rocky 2019 as it announced a restructuring in July, following years of decline. The bank exited global equities and its trading business, as well as announcing plans for 18,000 job cuts by 2022. 

Shares in the bank fell further in October after it posted its second straight quarterly loss and reported a 13 per cent drop in revenue at its fixed income trading division, which has historically been a key strength of the business. Some have likened its woes to that of collapsed Lehman Brothers, which could have systemic consequences. Indeed, Deutsche’s woes are part of a wider malaise among European investment banks. Low interest rates and slowing economic growth are weighing on their profits, and US rival banks are beginning to dominate on the continent.

 

6. Oil spikes 

The Brent crude oil price rose by almost $12 to near $72 a barrel following an attack on Saudi Arabia’s oil production facilities in September. The US blamed Iran for the attack on Abqaiq, a key crude processing complex south-west of Saudi Aramco’s headquarters in Dhahran.

The incident highlighted the geopolitical vulnerability of the world’s biggest oil exporter. But the company raised a record $25.6bn in its initial public offering in December – and touched a valuation of $2 trillion on its second day of trading. The Opec+ alliance, which includes Russia, moved to curb production in December in order to prop up the oil market. Saudi Arabia has been angling to push up prices amid warnings that it will face a supply glut in the first half of 2020.

 

7. Global car production falling

Global car production has been falling in 2019 and further falls are expected in 2020, according to data from IHS Markit, signalling a potential economic slowdown. Four million fewer vehicles were sold in 2019 than in 2018, according to the Association of the Automotive Industry. Daimler, Audi, Continental and Bosch have announced a combined total of around 50,000 job cuts this year. A broader downturn in the world’s largest auto market, China, has also weakened a crucial source of revenue for western carmakers. In the UK, car production fell by 4 per cent in October.

 

8. Debt deepens in the UK

Wealth inequality is widening in the UK, according to official data from the Office for National Statistics. In the most recent period, total household financial debt rose by £12bn (11 per cent) in the latest period, up from £107bn in April 2014 to March 2016.  Most of the change is accounted for by increased hire purchase debt and student loans. On the other hand, the total net wealth of private households rose by 13 per cent to £14.6 trillion between 2016 and 2018, after adjusting for inflation. 

This increase in private wealth was driven by growth in property, pension and financial wealth. But conflicting forces of lower home ownership against increasing housing wealth has led to widening inequality. The Trades Union Congress (TUC) estimates that unsecured borrowing hit £428bn at the end of 2018.