Publication date: 5 December 2018 | Covering: November 2018
Monthly Briefing
- US midterm elections November 6: Democrats take House of Representatives; Republicans retain Senate
- Fed November 7–8: Holds 2.00–2.25%; “further gradual increases” maintained; December hike expected
- Oil prices fall sharply through November: WTI from $85 in October to below $50; energy sector stress
- G20 Buenos Aires summit December 1 (days away): Trump-Xi trade meeting the critical event
- Global markets volatile; emerging markets under sustained pressure; dollar strong
- BOJ steady; Jamaica NHT J$6.5 million individual ceiling; rates 0, 2, 4 per cent; housing demand maintained
Midterm Elections and Market Volatility
The United States midterm elections on 6 November produced the divided government outcome that markets had broadly anticipated: Democrats reclaimed control of the House of Representatives, gaining more than forty seats, while Republicans consolidated their Senate majority. The divided Congress outcome was initially received positively by financial markets, which historically have performed well under divided government, reducing the probability of major fiscal or regulatory shifts. However, the brief post-election rally was overwhelmed by the broader deterioration in market conditions that had been building since October, when Chair Powell’s remark that the neutral interest rate was “a long way” from current levels triggered a sharp equity sell-off. The S&P 500 fell approximately 7 per cent through October and remained under pressure through most of November.
The Federal Open Market Committee held the federal funds rate steady at its November 7 to 8 meeting, keeping the target range at 2.00 to 2.25 per cent, as universally expected given the meeting’s proximity to the election and the December hike already well-telegraphed. The statement continued to characterise risks as “roughly balanced” and maintained the “further gradual increases” language that had guided the tightening cycle. Markets were pricing an approximately 80 per cent probability of a December hike and debating the pace of 2019 tightening with increasing scepticism about whether the FOMC’s own projected three hikes for 2019 were achievable given the financial conditions deterioration.
Oil Price Collapse and the G20 Trade Horizon
One of the most significant financial market developments of November was the collapse in crude oil prices. WTI crude, which had traded above US$85 per barrel in early October — its highest level in four years — fell to below US$50 per barrel by late November, a decline of more than 40 per cent in under two months. The oil price fall reflected a combination of factors: US crude output reaching record levels, weaker Chinese and global demand expectations, and the United States granting waivers to eight countries from the Iran sanctions that had been expected to significantly reduce Iranian supply. The speed of the oil price decline was exceptional and contributed to stress in the energy sector, in oil-exporting emerging market economies, and in broader commodity markets.
As this edition goes to press, the G20 Leaders’ Summit in Buenos Aires is beginning, with the bilateral meeting between Presidents Trump and Xi on 1 December the most closely watched event. US and Chinese negotiators have been working to establish the parameters of a possible trade ceasefire, with markets pricing in significant probability of either a deal framework or a tariff pause. The outcome of the Trump-Xi dinner will set the trade war tone for the first quarter of 2019, when the January 1 deadline for tariff escalation on US$200 billion of Chinese goods would otherwise see the rate rise from 10 to 25 per cent. For Jamaica, the G20 outcome and the direction of global trade policy remain key external variables for the 2019 growth outlook.
Jamaica’s Mortgage Market Through November
Jamaica’s mortgage market maintained stable operating conditions through November 2018. The BOJ’s policy rate environment and the NHT’s sustained lending programme provided the domestic anchors for continued housing finance activity. The NHT’s J$6.5 million individual ceiling and 0 to 4 per cent subsidised rates remained the centrepiece of affordable home ownership finance for the contributor population. Commercial banks and building societies maintained their competitive positioning in the mortgage market, and housing demand continued to be supported by Jamaica’s improving employment and income environment. The global volatility of October and November had not produced material direct transmission into Jamaican mortgage market conditions.
Looking Ahead
The G20 Buenos Aires Trump-Xi outcome will be known before this edition reaches readers, and its implications will shape risk sentiment through December and into the new year. The Federal Reserve’s December 18 to 19 meeting — where a 25 basis point hike to 2.25 to 2.50 per cent is widely anticipated — will be the final major monetary policy event of 2018. For Jamaica, the combination of a December Fed hike, ongoing trade war uncertainty, and oil price volatility presents a complex external environment entering 2019, though the island’s domestic policy framework and IMF programme anchor provide meaningful insulation.
Mortgage & Housing Finance Disclaimer: This publication is for general information only and does not constitute mortgage, financial, legal or investment advice. Mortgage products, lending criteria, interest rates and borrowing costs vary between lenders and may change without notice. Readers should obtain independent advice from a qualified mortgage adviser, financial adviser or legal professional before making financial or property decisions.
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