Investors like me have now had almost a month to get our feet under the table in the new year. During this time, one of the things I have been doing is compiling an event cheat sheet for the year ahead. I believe it is beneficial to think about some of the most important coming events that could have an impact on the financial markets.
Here are a couple of the biggest that are already on the calendar.
Bank of England meetings (Jan/Mar/May)
It is very hard for me to pin down any one of the three upcoming meetings as the most important, so I’ll be sure to watch out for them all. Futures markets are pricing in a 55%–72% probability of a 0.25% interest rate cut at one of these three meetings.
The probability increases the closer we get to summer. For example, the meeting on Thursday has a 55% chance of a cut, whereas the May meeting has a 72% chance.
Why is this a key market event? Well, interest rates are a key barometer of the health of an economy. The central banks of struggling economies often cut rates to boost demand. The thinking is that if people get paid very little to save money, they are more likely to spend.Â
So I will be watching for if and when the Bank of England cuts, as well as the resulting move in the stock market. Traditionally, interest rate cuts are seen as positive for an index like the FTSE 100. This is because it makes debt funding cheaper, as firms are charged lower rates of interest to borrow. Further, given the international scope of the FTSE 100, a stuttering UK economy can be offset by overseas earnings.
US presidential election (Nov)
What happens across the pond with our US cousins may seem of little importance to markets here. But that is not the case. The winner of this year’s election could have a big impact on international relations.
There are numerous possible scenarios. Should Trump manage to win again, then we could see a post-Brexit trade deal between the US and UK, which could be seen as a large positive for specific beneficiaries in the FTSE 250.
Judging by past results, the market would take a Trump victory as a positive sign, which would aid risk sentiment. We saw this at the last election in 2016, when UK equities jumped along with US equities.
Also remember the adage, “when the US sneezes, the whole world catches a cold”. Should we see a surprise win followed by a period of political and economic uncertainty in the US, then the UK stock market could easily become an indirect loser as a result.
Overall, I suggest you watch out for the movements from the Bank of England in the first half of the year, and for the results of the US election in the second half. Both could set the tone for the UK stock markets in 2020.