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Market round-up: 11 – 15 February 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 February 2019.

A last minute choice for MPs?

For anyone who commutes to work by train, they will be all too aware that rail fares have increased on average by a staggering 37% over the last decade. Whilst delays are on the rise and customer satisfaction trends ever lower, there was one delay that investors were happy to wake up to at the beginning of the week.

It seems Theresa May’s high-stakes strategy may have been inadvertently leaked as a top UK civil servant for Brexit was overheard by a reporter in a Brussels bar remarking that the MPs will be given a last-minute choice between Mrs May’s deal or a lengthy delay. According to reports from ITV news, the government has “got to make them believe that the week beginning end of March … extension is possible, but if they don’t vote for the deal then the extension is a long one.” News that the UK may have more time to negotiate a deal in its divorce from the EU helped UK midcaps, led by housebuilders and more cyclically orientated companies, push the benchmark higher. Sterling’s rise was fleeting as the second half of the week saw the PM confirm that the March 29 deadline still stands, allowing the pound to drift below $1.28 to the dollar.

 

Inflation data

Also hampering sterling’s progress was weaker than expected inflation data released on Wednesday. Sliding below 2% for the first time since 2017, CPI came in at 1.8% for January, below consensus forecasts of 1.9% and below the Bank of England’s target. Although rail ticket prices increased by 3.1% in January, they failed to prop up inflation as gas and electricity prices fell by 8.5% and 4.9% respectively.

 

Spending trends

The UK economy was thrust into the spotlight later on in the week as the Office for National Statistics released Retail Sales figures, detailing the change in the total value of inflation-adjusted sales between the current quarter and the last. When comparing the two periods, sales jumped 1%, way above a forecast 0.2%. Such a jump was the highest since December 2016. There was cheer for a beleaguered high street as clothing and footwear firms showed strong year-on-year growth of 5.5% as consumers seemingly flocked to the January sales.

From the High Street to Main Street, the UK’s figures were in sharp contrast to retail sales released in the US on 14 February. American consumers apparently fell out of love with shopping over the first quarter with the weakest set of numbers being reported since 2009. The shockingly weak report was largely attributable to other data showing an unexpected increase in the number of Americans filing claims for unemployment benefit last week.

 

As we get deeper into February and thoughts of winter slowly transition into the anticipation of more sunshine and the higher temperatures spring brings, the heat is certainly rising in Westminster. Theresa May has vowed to press on to secure a revised Brexit bill in the coming days after enduring another parliamentary defeat to endorse her deal last week.

With just over a month to go before the deadline for a Brexit deal to be struck, the UK economy comes under the spotlight again next week. Having shown some signs of life last week with stronger than forecast retail sales data, the real gauge of how the economy is faring should come with GDP data, released on Monday. The change in the total value of goods and services produced domestically is key to measuring the strength of the economy.

The middle of the week will see attention shift to the world’s largest economy, as important inflation numbers will surely make for interesting reading. With inflation ultimately failing to take off in the US despite historically low unemployment levels, both the US central bank and investors will be waiting to see if inflation is starting to manifest. The US will continue as the focus for the rest of the week as Thursday sees Retail Sales and Industrial Production figures made public.

With the US Federal Reserve having seemingly performed a U-turn in their rate hike trajectory, going from hawkish to more dovish tones in the space of a few weeks, the US data should take on added significance.

 

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