According to Chinese folklore, once upon a time, the Jade Emperor called all of the animals to a meeting, telling them he wanted to pick the 13 most faithful creatures and reward them with their own year. To differentiate them, he gathered the 13 on the banks of a wide and wild river, telling them the sequence in which they crossed would dictate the order of the years.
This week marked the start of the twelfth and final year of the cycle of animals that comprise the Chinese zodiac, that of the pig. Rumour has it the notoriously lazy animal woke up too late for the race and consequently came last. For those aficionados of Chinese myths, the pig symbolises wealth, with its portly body a sign of great fortune. Of course, an animal that signals great fortune is a naturally positive sign for investors but it is the pig’s other symbolism that bares a relevance to financial markets this week. The pig is also synonymous with the hours of 9 to 11 at night, something it seems UK investors are becoming particularly weary of as Brexit negotiations head towards the eleventh hour.
Having performed strongly in January on the back of diminishing chances of a ‘no deal’ Brexit, it seems that talks could go to the wire as Theresa May’s positive comments were swiftly rebuffed by the European Council this week. After a series of meetings in Europe, the Prime Minister vowed to deliver Brexit “on time”. However, any comfort the market found from her words was soon quashed by European Commission President Jean-Claude Juncker, who again ruled out any changes to the deal that Mrs May failed to pass through parliament last month. To rub salt into the wound, European Council President, Donald Tusk, later tweeted that there was “no breakthrough in sight” following his talks with Mrs May. Unsurprisingly, the news from Brussels put sterling back on the defensive, pushing it below $1.30. Sterling’s decline was the FTSE 100’s gain as large cap, dollar earners, further buoyed from strong results from BP and Shell, outperformed their global peers.
Negotiations were equally as tense between Washington and Beijing this week as news that US President, Donald Trump and Chinese premier, Xi Jinping, were unlikely to meet before the 1st of March deadline set by their governments to reach a fresh trade agreement. With the US market having hit a two-month high during the early part of the week, investors took to the side-lines, dragging the S&P500 down over 1% on Thursday. The US dollar, a laggard after last week’s dovish Fed outlook, made its way higher against a basket of developed currencies as risk sentiment soured.
It was a quieter week on the economic data front, in part due to China’s closure in observance of their new year, however, the Bank of England still made waves, at least in domestic markets, with their downbeat views on the UK economy. Forecasting the lowest rate of growth since 2009, when the economy was in recession, Mark Carney & co now expect growth of 1.2% this year, much lower that its previous forecast of 1.7% made in November. As expected, the central bank kept rates unmoved at 0.75%.
The downbeat mood spread across the channel, with the European Commission sharply cutting its own growth forecasts as expectations that the bloc’s largest economies will be held back by increasing trade tensions. On the news, Germany’s export-heavy DAX index fell 2.7% on Thursday.
…For those wondering why there were 13 animals involved in the Jade Emperor’s race and only 12 animals of the zodiac, the cat received his comeuppance for attempting to cheat, stealing a ride on the ox’s back. Subsequently falling off and into the water, he washed up back on the bank where the race started….