Market round-up 28-1 November
Thomas Watts | November 01, 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 November 2019.
In a week that incorporated Halloween, a day usually reserved for remembering the departed, it was in Westminster that spirits were raised the most as parliamentary deadlock was finally broken when a consensus was reached on an election set for 12 December.
In what has been a bit of a horror show for the Prime Minister to date, Boris Johnson won his fourth bid to go to the polls by a majority of 438 to 20 after opposition leader, Jeremy Corbyn, declared that his criterion of a no deal Brexit being removed from the table was met. The prospect of another election rattled domestic investors, leaving the FTSE 100 to shed 1%, its largest fall in 10 days. Leading the index lower was BP, sliding more than 1% after reporting poor numbers for the third quarter.
Although elections can be a risky business (just ask Theresa May), the Conservatives’ considerable lead in the polls over Labour gave currency traders cause for optimism, leading sterling to test the $1.30 mark. Sterling’s strength was FTSE’s detriment however, as the large cap index moved downwards throughout the week, again driven by lacklustre results from an oil major, this time Royal Dutch Shell.
US President Donald Trump
The Halloween theme carried on across the pond this week as impeachment proceedings towards Donald Trump gathered pace. Branding the resolution as ‘The Greatest Witch Hunt In American History!’, this week’s accusations could have major repercussions for President Trump further down the line as the US gears up for the start of 18 months of electioneering.
From US politics to US economics, a further 0.25% rate cut from the Federal Reserve spurred global markets to 20-month highs this week, led by Asian economies benefiting from a softer USD. The third cut this year did not come as a shock to markets, who had largely priced in such a move, leaving the Fed’s future guidance to really move international bourses. The Fed’s signal was that the latest cut could be the last reduction in rates for a while unless the US economy takes a turn for the worse. “We believe that monetary policy is in a good place,” commented Fed Chair Jerome Powell during the press conference afterwards, pushing the S&P 500 to a record high. Friday’s US non-farm payroll data came in higher than expected, adding 128,000 jobs last month, 39,000 more than expected, vindicating Powell for his comments.
In a week famous for its apparitions, markets were spooked on Thursday as Chinese officials cast uncertainty about a US-China trade ceasefire, saying they doubt a comprehensive deal is achievable despite the seemingly good-natured spirit of the talks so far. Markets had been on course for their largest drop in three weeks but consensus beating corporate results from both Facebook and Apple, the former rising 2.26% on the day, helped markets recover.
With a general election now finalised for 12 December, those hoping for an end to the Brexit impasse surrounding Westminster will finally have something to build on.
Having been in structural decline for the majority of 2019, UK Construction PMI has continually shown signs of contraction as Brexit uncertainty starts to weigh on the sector. The data, which is released next week, will come from around 170 purchasing managers that work in the construction industry, who will answer questions on their current views on business conditions including employment, production, new orders, prices, supplier deliveries, and inventories.
Cementing the view that this data should give us on the UK economy, Thursday will transform into the Bank of England’s (BoE) “Super Thursday”, a positive jamboree of domestic economic data. The BoE will announce three major pieces of information: its decision on interest rates; the minutes of the monetary policy committee’s latest meeting and its quarterly inflation report, including the bank’s views on all facets of the UK economy. Although there have been rumblings of rate movements in both directions, many economists agree that the Bank of England will adopt a constructive ‘wait and see’ approach after the UK divorces from the EU and expect no changes this coming week.
In what is a relatively quiet week on the economic data front abroad, investor attention should switch to the US on Friday as Prelim University of Michigan consumer sentiment is released. Financial confidence felt amongst the consumer is the main driving force of any economy and accounts for the majority of consumer spending and activity. With the trade war between the US and China continuing to take its toll, the figures should make for interesting reading, especially with the campaigns’ bandwagons about to start their engines for 2020’s upcoming US election.