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 2019.
How apt it is then that in Charlemagne’s time September was branded the “Harvest Month”, more to do with agriculture than financial markets, and yet over the last five days it has been the willingness of the Chinese to purchase increased levels of US farm produce that has been driving bourses. For the last 18 months, the world’s two largest economies have traded tit-for-tat blows in a damaging trade war, ramping up respective tariffs on each other’s goods almost in tandem. The relief was palpable, therefore, when the news broke on Wednesday that China released a list of 16 US imports that will be exempted from further duties.
Impact on markets
What many investors viewed as a friendly gesture before high-level talks during the following month had a profound impact on markets. The FTSE 100 built on gains earlier on in the week, rising 1%; its best day for nearly two weeks as Asian-facing financials and mining heavyweights pushed the index higher. However, US Treasury yields also rose consecutively during the first three days of the week as investors pondered over just how aggressive the European Central Bank might be with cutting rates. Bonds were helped by a pair of tweets from Donald Trump on Wednesday calling for the US Federal Reserve to cut interest rates to zero or into negative territory. Whatever President Trump’s tactics, it seems in his sentiment at least, the US President was not ploughing a lone furrow with his monetaristic proposals.
Thursday saw the ECB announce that they were ready to step up their use of any monetary tools available and even introduce new ones if necessary. The head of the bank, Mario Draghi, went on to pledge indefinite stimulus in order to revive the Eurozone’s somewhat ailing economy. Actions usually speak louder than words however, and it was the bank’s proposed rate cut, deeper into negative territory and promised further bond purchasing that captured the imagination of markets. Currency traders especially made hay whilst the sun shone, with the Euro dipping against a basket of developed currencies before rising to finish up against the dollar and continuing to strengthen into Friday.
It was not only the Euro that enjoyed a strong week but also our very own pound, rising throughout the week to over $1.246, spurred on by two main catalysts. On the economic data front, Monday saw strong numbers across the board as both GDP and Manufacturing Production came in at or above analysts’ expectations. GDP, being the broadest measurement of economic activity, was particularly pleasing with the services sector, the only real bright spot, outweighing the drag of poor production and construction proved to be on growth. While the complexities of Brexit take their toll on our new Prime minister, they are having the opposite effect on the pound, which bounces on the back of each potential legal blockade Boris faces and the perceived lower likelihood of a no deal Brexit.
Friday saw more positive news as investment bank Credit Suisse announced, somewhat against the grain, that they had turned bullish on UK stocks, especially those with considerable international exposure, citing the diminishing chances of the UK crashing out of the EU as the main catalyst for their thinking. UK equities have been widely shunned by international investors since the EU referendum back in the summer of 2016, with Credit Suisse becoming the first major bank to change its mind on the much-overlooked domestic economy.
As the House of Commons sits dormant during the coming week, many commentators will turn their attention from politics to economics, focusing instead on the rest of the housing stock within the UK.
Released by Rightmove each month, the numbers will detail the change in the asking price of homes for sale in the UK. Acting as a leading indicator for the health of the domestic housing market, Rightmove’s data should prove all the more valuable as we enter the final weeks before the UK’s divorce from the EU, with house prices acting as a useful gauge in measuring sentiment for the domestic economy.
Sentiment could be the watch word for the first half of the coming week as attention switches across the Channel to mainland Europe. The bloc’s largest economy, Germany, releases its economic sentiment survey results on Tuesday. To collect the data, 300 German institutional investors and analysts are asked about their views on the general economic outlook. Those that are surveyed are often highly informed due to the nature of their jobs and changes in their sentiment usually acts as an early signal of future economic activity.
Towards the end of the week, all eyes will turn to central bank policy as both the US Federal Reserve and the Bank of England hold press conferences about their respective economies. Wednesday will see the Fed go first, releasing minutes from their previous meetings and showing how their members voted when discussing future rate policy.
This coming Thursday is the self-proclaimed “Super Thursday” for our own Bank of England, with the bank releasing its own thoughts on monetary policy as well as Retail Sales data. Much like the housing data released earlier on in the week, the numbers and views given should make for fascinating reading as we move towards the 31st October Brexit deadline.