Market round-up: 19 – 23 November 2018
Thomas Watts | November 23, 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 November 2018.
The week that was
After last week’s heavy losses, the UK enjoyed some level of relative calm, especially in Westminster as a beleaguered Theresa May vowed to battle on. The growing sense of tranquility was further felt as it appeared that Jacob Rees-Mogg’s much touted vote of no confidence against May failed to materialise, struggling as he did, to find another 47 Tories who wished to oust the Prime Minister.
Westminster’s serenity led the FTSE 100 to outperform its European peers on Monday, falling only 0.2% compared to a 0.7% slide across the channel. Led lower by the automobile sector, European bourses took a particularly dim view of Renault shares, hindered as they were, by claims that their Chief Executive was arrested in Japan on suspicion of fraud.
This was not to say that the UK escaped unscathed during the week. UK shares fell to three-month lows on Tuesday, the hardest hit last week, as housebuilders were bulldozed further as investors dumped stocks across the board, stoked by renewed fears over Brexit and Rome’s budget showdown with Brussels. A warning from the Bank of England that the economy could spiral into a crisis not seen since the 1970s if a no deal divorce is secured with the EU, did not aid matters.
Investors had plenty to be thankful for during the second half of the week as North American markets closed in observation of Thanksgiving on Thursday. However, Friday saw the release of both manufacturing and services PMI data from the world’s largest economy: manufacturing fell to 55.4, from October’s 55.7, whereas the optimism in the services sector fell slightly further to 54.4 versus last month’s 54.8. A monthly reading greater than 50 suggests expansion, whereas anything below shows a contraction.
The week ahead
With Brexit negotiations having finally made a breakthrough – or doomed to fail in parliament, depending on who you speak to – Monday morning should make for an interesting time for analysts. Theresa May is heading off to Brussels this weekend in an attempt to shore up negotiations with the EU Commission and have some formal document to present to parliament; the bullishness of an overall deal potentially being struck could set the tone for the week.
It’s a stressful time for businesses which are more exposed to the domestic economy, while the recent ebbs and flows of Brexit negotiations have had a particularly detrimental effect on the banking sector. Stress tests of a different kind will be placed on the UK’s financial institutions on Tuesday as the Bank of England puts our banks through their paces. The stress tests will apply synthetic market conditions to the balance sheets of our high street lenders in an effort to determine their stability and capital reserve adequacies. We could expect to see potentially pronounced movements in banks’ share prices as the BoE then releases its report into possible risks to the sector’s stability. Detailing the strains and imbalances on the UK economy could provide some insight into future monetary policy, and will have financial analysts pouring over the figures with interest.
Our own central bank will not be the only one set to speak this week; the US Federal Reserve releases its meeting minutes which can be a source of market volatility, especially in currency markets. A more hawkish report than expected could put the USD back to the top of the pile, a theme that has continued throughout 2018. The minutes will provide a detailed record of the Federal Reserve’s thoughts, giving us an insight into the financial conditions that influenced their vote on where to set interest rates.