Market round-up: 18 – 22 February 2019
Arjun Pandya | February 22, 2019
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 February 2019.
The week that was…
The magical number seven
The magical number 7 (plus or minus two) as published by cognitive psychologist George A. Miller, is one of the most cited papers in the field of psychology. It is often quoted that the average number of objects in a sequence or list (numbers, items or words) a human can hold in working memory is seven, with a deviation of two.
The number seven, it seems, will be forever etched into the memory of Jeremy Corbyn after the beginning of the week saw seven Labour MPs quit his party in protest of his leadership. Swiftly followed by a further Labour and three Conservative MPs, the Independent Group, as they are calling themselves, now have as many seats in parliament as the Liberal Democrats. Although the events in Westminster had no direct impact on proceedings in the City, the sudden shift of power had a profound effect on sterling. As political commentators lowered their expectations for the Labour Party regaining power anytime soon, the pound made its way back up past $1.30 versus the dollar, as somewhat ironically, the UK political scene appeared more stable.
Sterling’s ascent was also aided by a sharp increase in the Confederation of British Industry’s report that expectations of industrial orders were much higher than predicted. With Brexit doom and gloom leading many analysts to predict a slump in orders, the report showed order volumes are in fact expected to increase. The data is important as it acts as a leading indicator of economic health. Businesses react quickly to market conditions and a change in their expectations can signal future economic activity such as hiring, investment and expansion. There was further positive news for the UK as it posted its biggest budget surplus in January since records began, with much higher than predicted income tax receipts. The expectation now is that the budget deficit for this year will now be the lowest since 2001/2002, which may allow chancellor Hammond to further loosen the purse strings.
Across the pond
The US endured yet more soft economic data as Core Durable Goods Orders showed signs of contraction, coming in at -0.1% against forecasts of +0.3%. The figures detail the change in the value of newly purchased orders placed with manufacturers for large industrial items. Interestingly, the data excludes transportation items – usually for aircrafts as such orders can be volatile – seriously skewing underlying numbers and trends.
The week was rounded off with news that UK cheese manufacturing heavyweight Dairy Crest has received a takeover bid from Canada’s Saputo, one of the largest dairy processors in the world. With a bid of 620p a share, the offer values the manufacturer of Clover and Cathedral City Cheese at close to £1 billion.
The week ahead…
The final week of February will see a number of economic data releases but it could well be US-China trade relations that attract investor focus over the coming days. As we transition into March, a month named after the Roman god of war, we could see a potential end to the trade conflict that had plagued markets for much of 2018. With a deadline of the 1st March scheduled in for the conclusion of talks, comments from both Washington and Beijing have been mostly positive, with US President Trump even admitting he will let the date ‘slide’ if a breakthrough is near.
Press conference with Mark Carney
Although market movements could well be dictated by updates between the two superpowers, on domestic shores analysts will be looking forward to a press conference from our very own Mark Carney, the Governor of the Bank of England. As head of the central bank, Mr Carney’s words can have an exaggerated influence on UK markets and especially on sterling. The governor is usually quite forthright with his options, especially around Brexit, and investors will be pouring over his words for subtle hints and clues as to future monetary policy.
In the US
Mark Carney won’t be the only central banker to appear next week as his opposite number in the US, Jerome Powell, addresses the media on Wednesday evening. His appearance will see him presenting the Federal Reserve’s semi-annual Monetary Policy Report before the House Financial Services Committee in Washington DC. The testimony will come in two parts, first a prepared statement followed by a question and answer session. The questions asked are entirely unscheduled and can make for more unprepared and unscripted answers, often leading to increased market volatility. With the Federal Reserve making increasingly dovish noises, Mr Powell’s words will take on the added impetus.