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Market round-up: 11 – 15 March 2019

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The information in this blog or any response to comments should not be regarded as financial advice. If you are unsure of any of the terminology used you should seek financial advice. Remember that the value of investments can go down as well as up, and could be worth less than what was paid in. The information is based on our understanding in March 2019.

May’s Brexit Deal

In a week that saw the beginning of one of the biggest events in the National Hunt calendar, the Cheltenham Festival, it seemed there was only one real non-starter.

In a final push to convince MPs to back her Brexit deal, a beleaguered and hoarse-sounding Theresa May returned from a late night meeting with EU officials on Monday with supposed assurances on the Irish backstop. However, any optimism was short-lived as the Bill faced more hurdles than a runner at the Gold Cup. First the DUP, a section of parliament Mrs May is now forced to rely on heavily, said in a statement that “sufficient progress has not been achieved at this time”. Tory Brexiteers concurred and with the final nail in the coffin coming from Attorney General, Geoffrey Cox, telling the Commons that the legal risks over the backstop remained. The odds on the deal’s success became longer and longer.

Unsurprisingly, the Prime Minister’s motion was defeated for a second time and by another considerable margin, this time by 149 votes.

 

Markets reacted

Sterling, which had enjoyed a strong rally earlier on Tuesday, sank back down on the news. It was a wild ride for the domestic currency this week as the following day saw MPs vote on whether to reject the notion of leaving the EU without a deal at all. In a closer than anticipated vote, a no-deal Brexit was voted down by 312-308. Following the news, sterling was again on the rise, pushing $1.33 in what had been a busy week for currency traders. Although the pound has had something of an inverse relationship with the FTSE 100 since the Brexit referendum, the blue-chip index finished the week in the black as well, as investors saw a potential Brexit deadline extension as a way of breaking the impasse at Westminster.

 

Global Equities

It was easy to get too enthralled with the events in Parliament this week. But on the economic data front, there was big news from the US as inflation numbers allowed global equities to surge. US CPI rose for the first time in four months, albeit it at a very modest pace. The increase resulted in the smallest annual gain for nearly two and a half years, showing that inflation is in check and the US Federal Reserve has no real cause to act in raising rates.

The real loser of the week was Boeing, the aircraft manufacturer, whose shares slumped 6% on Tuesday. Extending Monday’s already significant losses, more countries, including the entirety of the EU, India, Russia, Japan and China grounded the troubled 737 Max plane following a second fatal crash in five months. Rival aeroplane manufacturer, Airbus, unsurprisingly saw their shares soar, leading the EuroStoxx benchmark higher throughout the week.

 

With chaos having engulfed Westminster during the previous week, it may be time to take a step back and look at the fundamentals of the UK economy, rather than what may or may not happen in regards to leaving the EU.

Tuesday

Economists are given the perfect chance to do so on Tuesday as the Office for National Statistics releases its Average Earnings Index figures. Measuring the change in the amount of remuneration private companies and the government are willing to pay their staff, including bonuses, the data will represent a three-month moving average compared to the same period a year earlier. The data will act as a leading indicator of consumer habits and potential future inflation; if the consumer feels happier in their job, seeing their wages increase, they tend to spend more which could be good for the ailing high street. Although we must remember rising wages have to be factored in by businesses that could see their margins squeezed.

More UK labour numbers follow on Tuesday as unemployment statistics are also released. Such data usually complements earnings numbers as it is generally viewed as a backward looking economic indicator. The number of those in employment is vitally important to the economy as consumer spending is highly correlated with the labour market.

Thursday

Unemployment levels are also a major consideration for those determining a country’s monetary policy and on Thursday will see our very own Mark Carney, Governor of the Bank of England, giving the Monetary Policy Committee’s views on the domestic economy. The assessments come as part of the Bank’s ‘Super Thursday’, a day when the MPC will publish its latest interest rate decision, the minutes from the meeting that determined those views and the quarterly inflation report.

The second half of the week could become a tale of two central bankers, perhaps setting the tone for the coming weeks as Jerome Powell, Federal Reserve Chair, is due to give his views on the world’s largest economy. With continually benign inflation and softer economic data coming through, many economists are now starting to believe that the Federal Reserve’s next rate move could be to cut rates rather than to continue with its hiking trajectory, giving his words added impetus.

 

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