Market round-up: 27 – 31 August 2018
Thomas Watts | August 31, 2018
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 August 2018.
The week that was
European autos in pole position?
With UK markets closed during the beginning of the week for the summer bank holiday, it was left to mainland Europe to drive positive returns. European autos were first on the grid, revved up by more than 2% on the news of a US-Mexico trade deal agreement, which could signal a change in stance towards other trade partners such as the EU. German carmakers particularly rely on smooth trade between Mexico and the US to sell their vehicles made in Mexican plants. US President Donald Trump had earlier suggested that a “big deal” could be struck soon, adding to investor sentiment. Although trading volumes were abnormally thin, both European and US stock rejoiced at the news, rising in unison and pushing the global benchmark to a five-month high. This was mainly driven by US benchmarks, with both the S&P 500 and NASDAQ composite extending their record-breaking run.
The bright start for the automobile sector was not broad based, with dual listed Tesla shares needing a retune, falling almost 4% on the German market. Having tweeted that he was exploring avenues to take his company private, citing the Saudi sovereign wealth fund as a potential backer, the somewhat erratic founder, Elon Musk, was then forced to reverse his plan. Capping what has been a tumultuous month for the company, already struggling with production challenges, Musk expressed frustration with the demands of operating a public company, including the quarterly reports that he said incentivised shorter-term thinking.
No signs of slowing for US Gross Domestic Product (GDP)
On the economic data front, markets were also buoyed by stronger than GDP data released in the US. With a consensus of 4%, the world’s largest economy showed no signs of slowing down, registering growth of 4.2%. GDP figures are released quarterly and represent the broadest measure of economic activity, adding up all the goods and services provided by an economy.
With such strong data, many investors could be forgiven for thinking that the US dollar would continue to strengthen, a general theme for 2018. However, it was sterling that stole the limelight, surging more than 1% on Wednesday. As news broke that Brexit Secretary, Dominic Raab, and Europe’s Chief Negotiator, Michel Barnier, had both claimed that a deal on Britain’s departure was within sight, the beleaguered pound was suddenly in demand. However, the domestic currency soon started creeping back down as UK Cabinet Office Minister, David Lidington, warned that it was either the Prime Minister’s proposed Chequers deal or no deal at all.
On Friday morning investors woke to the news that yet another UK company had been approached by an overseas group with Coca-Cola agreeing to buy Costa for $5.1bn. There has been a running theme of soft drinks companies trying to diversify their products away from sugary drinks and the purchase of Costa will provide Coca-Cola with coffee exposure in 32 countries, including a large European presence.
The week ahead
The coming week sees us enter September, a month that incorporates an array of new beginnings. For those who speak purely in meteorological terms, September hails the first day of autumn, it is also the source of discontent for many school children, (although maybe not for their parents) as the new academic year begins.
Back in ancient Rome however, the month also signalled the start of Ludi Romani (Roman Games), a collection of public games held for the entertainment and benefit of the Roman people. Although the trials died out with the Roman Empire, many see the fun and games taking place in Rome today just as entertaining; one of Italy’s ruling parties, the Five Star Movement is pushing for a budget deficit for next year that is three times the size of the previous government’s and nearly double what the current Minister of Economy and Finance is willing to accept.
As negotiations rumble on in the troubled European state, the Eurozone releases a plethora of Manufacturing PMI from its constituent states, including Italy. Although more focussed in northern and central Europe, manufacturing is still a large part of the European economy and has been thrust under the spotlight recently due to burgeoning trade wars between the bloc and the US. PMI data makes for a useful reading by economists and investors alike, who see it as a leading indicator of economic health. Businesses tend to react quicker to market conditions than individuals, with their purchasing managers holding perhaps the most current and relevant insight into the industry they work in.
PMI data make for a theme this week as the UK sees its Services PMI numbers released on Wednesday. With the UK being a largely services-based economy, the numbers take on added pertinence especially as it continues to negotiate an orderly exit from the EU. With a reading above 50 indicating expansion, our services sector looks to be in good shape, having accelerated to 55.1 during July.
The evento principle comes at the end of the week as US Non-Farm payroll data is released on Friday afternoon. With the US economy seemingly firing on all cylinders, investors will be looking for yet more robust employment data as the world’s largest economy continues to grow at a venerable pace.
The information in this blog or any response to comments should not be regarded as financial advice. This information is based on our understanding in August 2018.