Proceedings started on a more sombre note this week with the news that travel stalwart, Thomas Cook, had ceased trading, potentially leaving around 150,000 Brits marooned abroad. As the Civil Aviation Authority prepared to launch the UK’s largest peacetime repatriation operation ever, codenamed “Operation Matterhorn”, it was the UK’s Prime Minister that was left with perhaps the largest mountain to climb.
Tuesday morning saw the UK Supreme Court rule that Boris Johnson’s advice to the Queen over whether parliament should be prorogued for five weeks during the run up to the UK’s divorce with the EU was unlawful. As the news of the ruling broke, worries over how, when, or even if, the UK will be leaving the bloc by 31 October started to resurface amongst investors, dragging down both sterling and the more domestically orientated FTSE 250. In fact, the mid-cap index shed 0.7% on the day, its largest drop for over a month.
Such uncertainty also prompted the Bank of England to comment that it may need to cut rates, even if the UK does get a deal. Michael Saunders, a policy maker at the central bank said, “the UK avoids a no-deal Brexit, monetary policy also could go either way and I think it is quite plausible that the next move in Bank Rate would be down rather than up.” His words led sterling below the $1.23 mark for the first time in the week on Friday.
US President Donald Trump
Political rumblings also knocked markets on the other side of the Atlantic as a push for impeachment of US President Donald Trump gained momentum amongst Democrats in Congress. It was announced on Tuesday that the House of Representatives would launch a formal enquiry into whether Mr Trump had seriously violated the US Constitution by seeking Ukraine’s help to smear former Vice President, and front-runner for the Democrats’ 2020 election campaign, Joe Biden. Further developments towards the end of the week showed that a whistleblower had also made a complaint that the President had abused his position in office and had tried to “lock down” evidence about his conduct. Also pressuring Wall Street were very poor US consumer confidence numbers, highlighting just how large the economic impact of the ongoing trade war between the US and China has been.
Such tensions were however eased this week when Thursday saw China’s top diplomat comment that China was willing to buy more US products and that upcoming trade talks would yield results. Donald Trump had already said previously in the week that a deal with China could “come sooner than people think.”
The week ahead
Chinese Manufacturing PMI
The tone for the coming week could be set as early as Monday morning as Chinese Manufacturing PMI data is made public for western investors to wake up to. With China aiming to transition away from a manufacturing-led economy towards a services-based one, Monday’s numbers should make for fascinating reading. With a reading under 50 indicating contraction within the industry, China has endured poor numbers for the previous four months, each coming in at the high 40s and with a trade war with the US showing little signs of abating, many will be hoping that the world’s second largest economy can show some signs of strength as we head into the final quarter of 2019.
The domestic economy comes under the spotlight during the beginning of the week as the Office for National Statistics reveals the UK’s current account balance. The reading will detail the difference in value between imported and exported goods and services. The nation’s current account matters as it tends to have a significant impact on currency demand, as a rising surplus indicates that foreign parties are buying more domestic currency in order to execute transactions. The UK usually runs an account deficit, meaning we usually import more than we export, however, the data will be all the more pertinent as we head towards the Brexit deadline and trade deals may potentially alter.
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 the US Federal Reserve having already cut rates twice this year now to cushion a weakening economy, Friday’s data should show if the moves have indeed been vindicated.