Market round-up 21-25 October
Thomas Watts | October 25, 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 October 2019.
Neither politicians nor economists were afforded the luxury of a weekend off as an extraordinary sitting of parliament, the first in 37 years, forced Boris Johnson to ask the EU for an extension of Brexit. In a showdown on Saturday, MPs voted in favour of the Brexit deal but not the timetable; forcing the Prime Minister to put his Halloween divorce date under threat by agreeing that no vote on his final deal should take place until the Prime Minister asked for an extension from the EU.
With his hand forced, Boris Johnson sent an unsigned request to the EU, paradoxically alongside another letter that outlined reasons why the current exit date should not be delayed, sending mixed messages to the bloc to say the least. Though not to investors, who looked past the chaos in Westminster to the fact that an extension may mean that the chances of a no deal departure will be minimised. Domestically exposed stocks, as they had done in previous weeks, ticked higher, as did blue-chip mining stocks, fueled by concerns that ongoing protests in Hong Kong could affect supplies into the world’s largest economy.
Sterling slipped below $1.285 as Boris Johnson threw down the gauntlet to his opposite number, Jeremy Corbyn, by offering a general election on 12th December, in an attempt to break the Brexit impasse.
Despite the weeks moves, it proved to be a relatively quiet week on the Brexit front, giving investors the opportunity to focus on events across the pond and in particular the beginning of earnings season.
Tuesday saw the S&P 500 gently rise as strong numbers from Procter & Gamble and United Technologies more than offset downbeat forecasts from McDonald’s, which slipped 5% on the day. Highlighting that the trade war between the US and China is far from a game, Hasbro shares also suffered during the week, dropping 16.8% as the high-profile toy makers margins were squeezed by newly introduced US tariffs on Chinese goods. Earnings in the UK mirrored their US counterparts and were mixed at best, with Royal Bank of Scotland reporting a pretax loss of £8m for the previous quarter, after a combination of higher than expected PPI claims and a £193m loss from its newly branded investment banking wing, Natwest Capital Markets, took their toll.
Europe was in the headlines during the middle of the week as mixed economic data did little to lift the mood. Although French and overall Eurozone PMI data showed the bloc’s services sectors continues to expand, manufacturing was in great contrast, with numbers highlighting continued stagnation and demand for goods falling for a second successive month. Future expectations sank to the gloomiest since 2013 with job growth the lowest since 2014. Selling price inflation meanwhile stuck at a near three-year low amid muted cost pressures.
Foggy times ahead
The coming week sees us transition to November, the eleventh month of the year, or for those still desperately hanging on to the French Republican calendar, Brumaire, the second month of the year. Named after the French word for fog, brume, a regular occurrence in France at this time of year.
It is with some irony then that the coming week sees the Brexit fog become as heavy as ever, as further twists and turns are predicted with a potential general election being agreed for mid-December to try and break the impasse clouding Westminster.
After a 49-hour weekend, important economic data should start to be released first thing on Monday. Not to be mist (missed) will be German Retail Sales data, often used as a barometer for how the rest of the bloc’s consumers are spending their disposable income. Measuring the total value of inflation adjusted sales at the retail level, the data also feeds into consumer confidence numbers nicely and should take on added importance due to the global slowdown in trade, effecting Germany’s export driven economy directly.
The US should take centre stage on Wednesday as the Federal Reserve publish the minutes from their latest meeting and hold a corresponding press conference to explain their decisions and what they talked about. With many predicting that the Fed will move to cut rates twice more this year by 0.25% increments, it seems that President Trump’s trade war waged on China may have eased over recent weeks, which could affect the Fed’s thinking when it comes to a slowing US economy.
As always, the first Monday of the month signals the release of US Non-Farm Payroll data, a key piece of information when determining the US central bank’s next rate move. The employment data will be accompanied by Average Hourly Earnings, allowing us to gauge how inflation may manifest in the coming months.