This week we provide an update on the launch of Bitcoin futures, and flag three items of news both past and future. We also bring you up to date on asset allocations.
Widely seen as the beginning of mainstream acceptance, Bitcoin Futures began trading today on the Chicago Board Options Exchange (Cboe), and saw demand for the January dated paper increase as the hours ticked by. While the demand is insignificant versus the rest of the futures markets, and the first eight hours only saw about US$40mn traded versus the US$1.1bn of bitcoin traded against the US Dollar over the same period (i.e. about just 3%), demand is expected to grow not least as mutual funds still cannot invest.
After two bouts of tough negotiations, which saw the DUP stepping in as the Northern Ireland border became a key sticking point and in an all night session, the EU agreed that sufficient progress had been made in the Brexit negotiations to date to give its approval to move onto the next phase. The deal secured yet-to-be-finalised special rights for four million citizens and saw the UK agree to the process by which the divorce bill would be drawn up by which the UK would incur an exit payment of between €40bn and €60bn. However, articles over the weekend have highlighted that the legal status of the agreement may be in question since both sides only shook hands rather than signed anything.
Meanwhile in other trade negotiations, the EU agreed terms for a free trade deal with Japan to establish the world's largest open economic area and will encompass approximately 30% of global GDP once it has been ratified by EU members and the European Parliament. While a number of smaller deals are also under negotiation by the EU –including a discussion with China on investment rather than free trade per se –the decks will now be clear to start the discussions with the UK. These negotiations have already pushed out any proposed renegotiations with Switzerland, which is baulking at the continued prospect of the free movement of people across its borders.
The US economy added a stronger-than-expected 228,000 jobs in November, although October’s data was revised down to a gain of 244,000 meaning job gains have averaged 170,000 over the last three months. The solid data was seen to increase the probability that the Fed would raise rates once more in December. The unemployment rate held steady at 4.1%.The strong figures have led to a year-on-year wage increase of 2.5%.
The latest formal quarterly tactical asset allocation process has concluded and portfolio decisions have been made based on current market conditions and how we believe the situation will develop over the next three to 12 months.
On the equity front, valuations remain challenging and the record low volatility means that there are limited opportunities for investors to step back in had they baulked at investing earlier in the year. However there are limited opportunities outside of equities as well –the rising market has led to a broad increase in all asset classes –deservedly or otherwise. We continue to hold a significant proportion of our assets in cash (10%) on the grounds that the current period of calm may not last too much longer which could provide an opportunity to enter the market and more attractive valuations.
THREE ANNOUNCEMENTS DUE THIS WEEK
13 Dec –UK Unemployment Rate // 14 Dec –US Retail Sales // 14 Dec –European Central Bank Interest Rate Decision
SOURCES: BLOOMBERG; REUTERS; 7IM
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