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.
After a further week of political wrangling in Westminster, the divisive nature of Brexit not only tested party loyalty, but also household allegiances as the Prime Minister’s younger brother, Jo Johnson, resigned as an MP and cabinet minister citing an “unresolvable tension” with his brother. It seems that “unresolvable” could well be the word of the week as Boris Johnson was subsequently defeated by parliament on Tuesday evening as rebel MPs succeeded in preventing him from being able to take the UK out of the EU without a deal.
It was indeed of tussle of biblical proportions that led to the government’s defeat, losing 328 votes to 301 on a motion put forward by opposition parties and rebel Conservatives led by ex-Chancellor, Philip Hammond, who were warned they would face an exodus from the party if they defied the government. A general election could now well be in the offing as Mr Johnson reiterated his pledge to take the UK out of the EU by the 31st October deadline by lamenting how he’d “rather be dead in a ditch than delay Brexit”.
The week’s revelations in Westminster had a profound impact on the pound as traders shook off fears of a potential anti-business Corbyn government and focused on the abating threat of no-deal Brexit, allowing sterling to rise gently throughout the second half of the week. Rising past the $1.23 level, sterling enjoyed a relatively smooth ride against the USD.
Riskier assets were very much the order of the week on a global level as US stocks joined in with Asian bourses, reaching one-month highs. This was facilitated by news that top negotiators from both the US and China were to hold high-level talks in early October in an attempt to resolve a brutal trade war, whose Genesis can be traced back to well over a year ago now. Unsurprisingly, safe haven assets struggled as investors moved towards equities with gold sinking back to $1,500 an ounce and Treasury yields also backing up accordingly.
On the economic Numbers front, UK Service PMI data, regarded as more important than its sister manufacturing data, came in near consensus levels. A reading 50.6 compared to analysts’ forecasts of 51 may have been a little disappointing, but a gauge of over 50 still indicates that the sector is in expansion, if only just. The latest survey also revealed slower increases in new work and staffing levels, which was often linked to sluggish underlying economic conditions. Service sector firms, meanwhile, indicated a sharp drop in optimism towards the business outlook. Confidence regarding activity during the next 12 months also hit its lowest since July 2016.
The first Friday of the month signals US employment figures, more specifically Non-Farm Payroll data, often considered the most important piece of economic data when determining the health of the US economy. Jobs creation is the backbone of any economy and a tighter labour market, in theory, should bring with it increased remuneration and therefore higher levels of consumer confidence and retail spending. 130,000 jobs were added in August; this was below expectation but does continue to highlight the underlying strength of the US economy.
The week ahead
The second week of September may see MPs in the City of Westminster eventually take an enforced holiday as the government seeks to prorogue parliament. However, in the City of London there is no such luck.
It is pertinent therefore that the UK should take the spotlight straight away on Monday as both GDP and Manufacturing Production figures are released by the Office for National Statistics. GDP, acting as the broadest measurement of economic activity, will provide the set of statistics that interest economists the most. GDP measures the change in the total value of all the goods and services produced by an economy; the monthly UK GDP readings have been far from impressive over the previous few months with only two of the last five releases having been positive.
In what is an unusually quiet week for economic data releases, attention should switch across the Channel during the second half of the week, as the European Central Bank (ECB) holds a press conference on Thursday. Having promised that more quantitative easing could be on the way for the Eurozone, Mario Draghi’s words should make for interesting listening as he gives away clues as to any change in tack of what investors can expect during the coming months from Europe’s rate setters.
The ECB are not the only central bank making dovish noises as the US Federal Reserve also seems to be embarking on a rate cutting cycle of its own. Friday’s US Retail Sales figures should make for interesting reading, not only for the Fed but also for investors. With mixed signals coming from Wall Street about how the central bank is gauging the strength of the world’s largest economy, retail sales are vitally important as they link well into other data points such as inflation and consumer confidence.