Although global equity market returns were relatively muted during December, annualised performance from leading equity indices was very strong. The US, Germany, Japan, Brazil and India all generated double-digit returns, boosted by a strengthening global economy. The UK, however, bucked the trend as Brexit-related uncertainties took their toll on sentiment.
Brexit negotiations were allowed to progress to the next stage
US interest rates were raised to a range of 1.25% to 1.5%
Business confidence in Japan continued to strengthen
Although global equity market returns were relatively muted during December – particularly amongst larger companies – annualised performance from leading equity indices were very strong. The US, Germany, Japan, Brazil and India all generated double-digit returns, boosted by a strengthening global economy. The UK, however, bucked the trend; the FTSE 100 Index rose by a relatively subdued 7.6% over the year as Brexit-related uncertainties took their toll on corporate, consumer and investor sentiment.
In contrast, the FTSE 100 Index performed better than many other major indices during December, posting a monthly rise of 4.9%. Although Prime Minister Theresa May suffered defeat in the House of Commons over the EU Withdrawal Bill during December, the UK was judged by the EU to have made sufficient progress on key issues to allow the next phase of Brexit negotiations – including discussions on trade – to begin.
In the US, the Federal Reserve (Fed) implemented its third interest-rate increase of 2017 during December, raising the federal funds rate to a range of 1.25% to 1.5%. Fed officials expect another three “gradual” rate increases during 2018, underpinned by an economy that continues to strengthen. Elsewhere during the month, US equity indices were propelled to new all-time highs by the news that President Donald Trump’s controversial tax reforms had been approved by US lawmakers. The Dow Jones Industrial Average Index rose by 1.8% during December, but soared by 25.1% over 2017 as a whole, rising by more than 5,000 points.
During December, the EU stated that the period of transition following Brexit should finish by 31 December 2020 and reiterated its warning that the UK will not be allowed to “cherry pick”. The European Central Bank upgraded its growth forecasts for the eurozone’s economy; nevertheless, optimism continued to be tempered by a lacklustre inflationary backdrop. The Dax Index fell by 0.8% during December, but rose by 12.5% during 2017; meanwhile, the CAC 40 Index posted a monthly decline of 1.1%, but an annual increase of 9.3%.
The Bank of Japan’s quarterly Tankan survey of business sentiment showed that confidence continued to improve, boosted by strengthening export activity. Credit ratings agency Moody’s affirmed Japan’s “A1” rating and maintained its “stable” outlook, but warned against Japan’s “extraordinarily high” debt burden. The Nikkei 225 Index edged up by only 0.2% during December, but surged by 19.1% over the year.