Market round-up: 3 – 7 September 2018
Arjun Pandya | September 07, 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 September 2018.
The week that was
In a week that saw Britain get into all sorts of nautical scrapes, it was the Emerging Market sector once again that was a sea of red. With UK fishermen getting into a “scallop skirmish” with their French counterparts and a Royal Navy assault vessel sailing into the contested South China Sea, UK markets followed suit, ending the week underwater.
It was Asian bourses getting that sinking feeling, enduring six straight sessions of losses as investors fretted over Argentina and Turkey’s precarious economic positions, as well as a trade war between the US and China that showed no signs of abating. Plumbing the depths of a one year low, Asia was further rattled by US President Trump’s remarks on Wednesday, stating that trade talks with China would continue but the US was not ready to come to an agreement just yet.
Further weighing on sentiment was poor data out from the Eurozone, specifically Germany, as industrial orders fell unexpectedly in July. The data acted as another sign that Europe’s largest economy is starting to feel the chill of US protectionist policy.
Reactions to Brexit progress
However, some positive news did come from across the Channel this week as reports of Brexit progress between UK and Germany buoyed investors. On the news, sterling flew higher, rising 1.2% on Wednesday afternoon leaving it just short of $1.30 on the US dollar. Bloomberg news agency reported that Germany had declared its preparedness to “accept a less detailed agreement on the UK’s future economic and trade ties with the EU in a bid to get a Brexit done.”
Although Berlin’s words were ultimately good for the UK, domestic economic data proved to be mixed. With both our services and manufacturing PMI’s out this week, the good news was that both sectors showed signs of expansion. However, manufacturing expanded at a slower pace than in previous months. The UK’s services sector, by far the largest part of the economy expanded at a strong level, with a reading of 54.3. August’s number represented the highest level this year.
Expectations of a rate rise?
What was a busy week for markets was rounded off with US Non-Farm Payrolls, a key piece of economic data particularly looked at by the Federal Reserve. The latest jobs figures showed 201,000 new jobs added over the last month beating the forecast of 190,000. Wages increased by 2.9% year on year, the biggest pace of growth since 2009, bolstering expectations for a third rate rise from the Fed this year when policymakers meet at the end of the month.
The week ahead
With global markets having endured five straight days of losses, investors will be looking for some indication of a turnaround in fortunes this week. The start of the week sees economists focus on the domestic economy as a slew of data is released.
Brexit negotiations have either hit a mur de briques or there is Ende in Sicht depending on who you listen to. With sterling ebbing and flowing in conjunction with the positivity of news flow, Monday will offer us the opportunity to gauge how strong the underlying economy actually is. The beginning of the week will not only see UK GDP, but also Manufacturing Production data being released. Combined, the two are important indicators of the health of the economy. With GDP acting as the broadest measure of economic activity we should gain a useful insight as to whether Brexit uncertainty has had a lasting effect on UK PLC.
Inflation will be in the spotlight on Tuesday as the Office for National Statistics releases the UK’s Average Earnings Index. The index will look at the change in price for private businesses and government pay, including bonuses. The data acts as a leading indicator of inflation due to the fact that when the consumer has more disposable income in their pocket, they tend to spend it, driving up demand in the process.
The excitement for UK investors carries right through the week with the Bank of England’s self-proclaimed “Super Thursday” giving analysts something to run the rule over. Having raised rates to 0.75% during their last meeting, there is no expectation of a rise this time but we should gain an insight into their current thinking and how they see the domestic economy shaping up.
Our own Mark Carney isn’t the only central bank chief to speak this week as Mario Draghi, President of the European Central Bank, is due to give an address also on Thursday. The press conference lasts two hours in length with the first part scripted and then a Q&A session at the end. The questions often lead to more off-the-cuff answers, which can translate to heightened volatility in financial markets.
Rounding things off
The week is rounded off by US retail sales, detailing the change in the total value of sales the US high street has enjoyed over the past month. With the US economy seemingly firing on all cylinders, many are expecting further strong growth as the consumer ramps up their spending.
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.