Investments

Market round-up 16-20 September 2019

Thomas Watts

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.

This week

Brexit

In a week that saw the Rugby World Cup kick off in Japan, the scrum in Brussels looked to finally be breaking as news on Friday gave hope that some sort of Brexit deal may be closer to getting over the line.

peaking during the second half of the week, European Commission President, Jean-Claude Juncker, conceded that “we could have a deal on Brexit.” Also commenting that a no deal Brexit would have “catastrophic consequences”. He also moved to soothe worries over a breakdown in negotiations saying he was doing “everything to get a deal.” The news that the chances of Britain crashing out of the EU without a deal were abating led sterling higher, rounding off a good week for the pound as it pushed towards $1.26, its highest level for a month. UK domestically-orientated stocks also joined the party, with house builders, often considered the most accurate bellwether for the domestic economy, leading the way with Persimmon and Bovis Homes up around 4% each.

Rates

As much as the elation was felt for UK investors, the blue-chip index lagged its global peers as world bourses rose on the news that China had cut a key lending rate for the second straight month on Friday. The move meant that China’s central bank had become the third to cut rates in recent weeks, behind the European Central Bank and the US Federal Reserve, the latter’s latest move coming on Wednesday. For the second time this year, the Fed saw fit to cut rates by 0.25% as concerns about a potential global slowdown grow. “We took this step to keep the economy strong,” said Chair Jerome Powell during a press conference with reporters. Although the cut was largely priced in by markets, the split in the Fed’s policy committee made for interesting reading as the vote to act was only carried by 7-3 votes. Investors had been hoping for more unity on cutting rates, bringing into question the central bank’s commitment to cutting rates further. The borrowing rate in the US now sits at 1.75%-2%.  One man who clearly wasn’t happy was the US President, tweeting:

“Jay Powell and the Federal Reserve Fail Again. No “guts,” no sense, no vision! A terrible communicator!”

Economic data

On the economic data front, inflation numbers were released for the UK on Tuesday, kicking into touch any worries that prices may be rising quicker than wages. Numbers showed that the average rate of inflation fell to 1.7% in August, its lowest level since December. The Office for National Statistics (ONS) attributed the bulk of the shift to falls in computer game costs and weaker rises for clothing than had been seen in the previous year. Falling CPI acts as a much-needed boost for household spending power as, last week, the ONS reported that wage growth was at its highest rate since mid-2008, at 4%. 

The week ahead

Japan

Japan’s economy is heavily exposed to the global economy due to the sheer amount it exports around the world. With trade wars between the US and China having taken their toll on the global economy, Japan has been affected more than most. Monday’s Flash Manufacturing PMI numbers should give us some indication of how Japanese manufacturing has performed over the last month. With a reading of over 50 indicating expansion and below representing contraction, Japan has endured marginal contraction in every monthly reading since February this year.

US Consumer Confidence survey

With economic confidence having also been rocked by ongoing trade wars, US Consumer Confidence numbers, released on Tuesday, should make for fascinating reading. Surveying about 5,000 households, respondents are asked to rate the relative level of current and future economic conditions including labour availability, business conditions, and overall economic situation. The data is important as it acts as a leading indicator of consumer spending, as consumers become more settled in their job, they naturally spend more, accounting for the majority of overall economic activity.

The data should be heavily correlated with Friday’s US Personal Spending, measuring the inflation-adjusted amount of consumer expenditure and acts as one of the most important gauges of economic health due to the vast ripple effect consumer buying creates in the economy.