Market round-up 26-30 August 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 August 2019.

This week

After a bank holiday that saw the UK bask in record temperatures, any extension to what had already been a prolonged break for many would have been warmly received. However, over in the Westminster bubble, this did not seem to be the case.


Wednesday saw the electorate and news broadcasters alike scrambling for their political dictionaries to check a word that had remained buried at the back of even the most knowledgeable commentators’ lexicon; prorogation. Boris Johnson’s plan to prorogue or extend Parliament’s recess by 5 weeks is the longest postponement of the legislature since 1945 and although not too unusual for a new Premier, in order to formulate new policies, Johnson’s timing has raised more than enough scrutiny. With only two months until the UK’s departure from the EU, his critics were keen to point out that a closing down of Parliament restricts further debate over a no-deal Brexit, acting as an “offence against the democratic process” as Commons Speaker John Bercow put it.

As the threat of Britain crashing out of the EU significantly grew, it was not just in Westminster’s communications department that felt the heat. Over in the City, the domestically exposed FTSE 250 slipped 0.7%. Housebuilders, often considered a major bellwether for the UK economy, were punished hardest with Persimmon, Berkeley and Barratt Developments all seeing around 3% wiped off their respective prices. Sterling, much like a cricket ball in an Australian fielder’s hands over the weekend, crashed to the floor. Falling back through $1.22, the pound’s plight helped to boost the Blue-chip index of predominantly dollar earners, rising throughout the week.

China’s Ministry for Commerce

More positive news was to come for the main domestic index as Thursday saw China’s Ministry for Commerce announce they were in discussions to have a face to face trade meeting with Washington and more talks were being scheduled for September. The trade war between the world’s largest two economies has blighted markets for well over a year now, helping to invert the US yield curve and bring about worries of a global recession in the process.

The export heavy Eurostoxx and, in particular, the German DAX rejoiced at the news seeing gains of well over 1% on the day. The rise was despite German preliminary inflation data showing that Europe’s largest economy’s good and services fell 0.2%, against consensus forecasts of a 0.1% fall. Over the previous years, the Eurozone has struggled to boost consumer spending, with inflation staying at relatively benign levels, despite extremely accommodative monetary policy from the European Central Bank.

The week ahead

The upcoming week sees us enter the month of September, a month known for its birthstone, the Sapphire. Blue in colour and remarkably hard, the precious gemstone comes under the category of the mineral Corundum. However, with the UK’s departure date from the EU drawing ever closer, coupled with a newly prolonged parliamentary recess, investors face more of a conundrum rather than Corundum as we enter the final third of the year.

Economic Data

Monday will see the first piece of economic data detailing the domestic economy as Manufacturing PMI numbers are released by the Office of National Statistics. Acting as a leading indicator of economic activity, the data derives from a survey of around 600 purchasing managers who will give their views on business conditions such as employment, production, inventories and new orders. By the very nature of their job, purchasing managers hold the most relevant insights into a company’s view of the economy. A reading of above 50 will indicate an expanding sector with below signaling contraction. After three consecutive readings of below 50, economists and politicians alike will be hoping for some positive news as Brexit uncertainty continues to materialise.

China and the US

Sticking with the theme of geology, the ongoing trade war between China and the US has continued to rock global markets, with consumer sentiment in various exporting economies such as the Eurozone’s largest constituent, Germany, sharply decreasing. Wednesday should give us more of an insight into this trend as Eurostat releases European Retail Sales figures. The numbers will detail the change in the total value of inflation adjusted sales on the High Straßen and rues of Europe. Whilst consumer spending still remains muted on the continent, recent readings have been above consensus, providing some relief for the region’s central bank.

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. With many now expecting the US Federal Reserve to cut rates next rather than raise them, poor employment data could help to reaffirm such suspicions.