After what had already proved to be a solid year for the FTSE 100, a Santa Rally in the run-up to the festive break has put the cherry on the cake.
Fresh gains in Monday trading mean that Britainâs blue-chip index is up 12% since the start of January, with current levels above 7,500 points being the highest since the sunny days of early August.
Not meaning to sound the (Christmas) party pooper but Iâd advise investors not to get too giddy. There are several reasons why the Footsie could find itself backsliding in 2020, so be careful out there!
Trade tensions
The FTSE 100âs end-of-year ascent has been (largely) down to hopes that Presidents Trump and Xi will draw a line under recent trade tensions that have rocked global growth. US-Chinese trade issues have plagued industry for almost 18 months now. So news that lawmakers were on the verge of signing off a âphase oneâ deal has given rise to hopes of supercharging global investment once more to get growth moving again.
This is the closest point that North American and Asian trade negotiators have reached since mid-2018, but itâs critical to remember that this phase of negotiations still hasnât been officially signed off. The exact nature of those critical âstructural reforms and other changesâ that China has pledged to make to its economic and trade regime remain elusive and thereâs still plenty of scope for a gigantic spanner to be thrown in the works. Whatâs more, the terms of the accord may have been agreed but the legal wording still has to be finalised.
Pound pressure
Footsie investors also need to be on their guard against a possible surge in the value of the pound in 2020. Any rise in sterling provides a headwind for those companies that report in foreign currencies, of which there are a great many on the UKâs premier share index.
The British currency galloped following the Conservativesâ victory at last weekâs general election, their thumping majority paving the way for Prime Minister Johnsonâs EU withdrawal agreement to be signed off next month. Fortunately, those hopes over trade talks have helped to mask the impact of the sailing pound.
As Iâve explained before, the possibility of an economically-damaging no-deal Brexit remains alive for the end of 2020. Thatâs the date by which a trade deal between UK and European Union lawmakers has to be reached, or at least thatâs according to those in London. But the scale of the work that needs to be undertaken, and with less than a year to be completed, would suggest otherwise.
I wouldnât be surprised to see that deadline being kicked into the long grass soon into the new governmentâs tenure, however, something which could give sterling an extra bounce. Johnson is no stranger to postponing supposedly-concrete deadlines, after all — see the previous Brexit deadline of October 2019 for evidence of this — and he now has the numbers in the Commons to do just as he likes.