market insight

Market round-up: 10 – 14 September 2018

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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 August 2018.

Anniversaries and divorces were the talk of the financial world this week as it marked a decade since the historic collapse of Lehman Brothers, and Brexit negotiations dominated newspaper column inches.


With a guide detailing the technical nuances of a No Deal Brexit having been released by the government this week, all seemed relatively calm on domestic shores, highlighted by the pound’s rise back above $1.31. The start of the week saw a slew of mostly positive economic data for the UK as domestic GDP and trade balance data came in ahead of consensus. GDP is one of the broadest economic indicators available to analysts, representing the change in the total of all goods and services produced by an economy. The numbers showed that the UK’s economic growth accelerated during July, driven by the hottest summer since records began, and the England football team’s progress to the semi-finals in the World Cup. That took growth in the three months to July to 0.6%, the fastest pace since August of 2017.


UK Average Earning Index

More good news was to come for Blighty as Tuesday saw the UK’s Average Earnings Index rise to 2.6%, ahead of a forecast 2.4%. The number shows a three month moving average of wages compared to last year, showing that after a long wait, wages are finally rising at a faster pace than inflation. The UK is now enjoying a strong labour market with unemployment at levels not seen since the 1970s. The gradual increase for workers’ pay will provide welcome relief for UK households struggling with higher levels of inflation since the EU referendum, when the sudden drop in the pound’s value pushed up the cost of importing raw materials to these shores.


Not so Super Thursday?

The much touted “Super Thursday” over on Threadneedle Street proved to be a bit of a damp squib as the Bank of England’s Monetary Policy Committee voted 9-0 in favour of maintaining base rates, having raised them in the previous meeting. The news flow was equally as sedate in Europe as Mario Draghi, President of the European Central Bank, spoke of a broad based recovery in Europe, however with GDP just below consensus at 2%, the bloc is still fragile.


US inflation

The week was rounded off by US inflation and retail sales data, both key in helping us gauge the strength of the American consumer and their confidence. The two pieces of data are inexplicably linked as increased retail sales often lead to increased prices as the supply/demand dynamic shifts.  Core inflation was reported at 2.2%, slightly below expectations of 2.4%. The miss was in part driven by a drop in apparel prices, which witnessed their biggest fall in seven years. Retail Sales also missed expectations at 0.3% month on month (MoM), rising less than the 0.5% forecast, following the upwardly revised July figure, suggesting consumers slowed their spending on the high street.



With the UK economy showing some signs of resilience, especially in the labour market where unemployment has reached lows not seen since the 1970s, one man reaping the benefits has been Mark Carney. The Governor of the Bank of England has secured a six-month contract extension to stay on at the Bank. Carney will be kept on in order to add some stability in the City of London whilst those in Westminster navigate the potential pitfalls of Brexit.


On Tuesday, the government will release its House Price Index (HPI), detailing the change in selling prices of homes across the country. Given Mr Carney’s stark recent warning that house prices could fall up to 35% in three years as a result of a chaotic Brexit, the housing data is likely to take on increased interest as the UK navigates through what will be a difficult period.


It won’t be just home sales that are on the agenda during the coming week, but also retail sales. Once again detailing the difference in the total value of inflation-adjusted sales at a retail level, the numbers will make for interesting reading, especially for an already fragile high street. With consumers having felt the squeeze over the past few years, retailers will be hoping that as wages have inched up, so has spending. Privately owned John Lewis, which is often viewed as a bellwether for the high street, has just announced that profits slumped 99%, which could be a negative precursor for retail sales.


A flurry of European and US PMI’s should round the week off, giving us some insight into how professional purchasing managers are feeling about the economy. By virtue of their job, purchasing managers are often more informed about the economy, holding more relevant insights into their company’s strategy to deal with any upcoming headwinds. Each data point surveys about 400 purchasing managers and asks respondents to rate the relative level of business conditions including employment, production, new orders, prices and inventories.


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.


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