As November comes to a close, we are greeted by the dawn of winter (according to the Meteorological definition); yet investors would be forgiven for thinking that they had been stuck in a perpetual winter, as trade and domestic politics continue evermore to dictate the ebbs and flows of the market.
The cooling winds of politics buffeted sterling as differing polling data impacted the currency. A poll early in the week showed that Labour had narrowed the gap on the Conservatives, and this led to the currency sliding versus a basket of currencies. However, the recent YouGov MRP poll, which successfully predicted a hung parliament in 2017, showed a 68-seat majority for the Conservative party causing sterling to rise through the $1.29 mark once more.
Our American cousins meanwhile had more to be thankful for than simply a turkey dinner as data provided some positive messages. US inflation undershot expectations at 1.3%, supporting recent rate cuts from the US central bank in order to try and support the economy and raise inflation. Despite the recent interest rate cuts, this latest figure still shows inflation below the 2% target and may encourage further rate cuts from the central bank. The US consumer continues to be the bright spot of the economy and the key driver behind GDP growth. While the latest consumer confidence figure slightly lagged expectations, Personal Consumption Expenditure data was in line with estimates and robust, and we also saw Q3 US GDP upgraded, in part, due to higher consumer spending along with higher inventories. US markets reacted positively to the news with the S&P 500 reaching new all-time highs during the week. In what was coined a “timely Thanksgiving present” President Trump this week signed bills backing the Hong Kong protesters, risking backlash from the Chinese. Despite this potential setback in US-China relations, it is unlikely that trade talks will stop.
Global manufacturing continues to cool down, having been negatively impacted by the ongoing US-China trade war, and data from the Eurozone showed this is still ongoing. Eurozone Manufacturing PMI data came in at 46.6; anything below 50 indicates a contraction. The positive takeaway is that developed countries have evolved and manufacturing, while still important to their overall economic health, is a much smaller component of GDP as countries have shifted towards a more services-based economy. When it comes to global trade volumes, winter appears to have arrived long ago, as recent data shows that global trade volumes dropped 1.3% in September, reversing previous gains. While the US & China trade declines account for the bulk of the drop, the chill has spread across all regions, with emerging Asia seeing a 3.3% fall in trade. The Eurozone showed more resilience with positive, but weak, September data. Elsewhere in the Eurozone, inflation in Germany came in at 1.1%, continuing a global trend of muted inflation.
The start of next week ushers in December, the 12th and final month of the year. It wasn’t always this way of course; December, getting its name from decem - the Latin word for ten, was originally the tenth month of the year in the ancient Roman calendar.
How appropriate it is then that Monday also starts the 10-day countdown to the UK’s general election, a vote that will be key in shaping next year’s political landscape. While the Conservatives still ride high in the polls, some recent surveys have shown their wings being clipped as Labour make potential headway. Although expectations that politics rather than economics could drive markets for the foreseeable future may not be wide off the mark, a significant amount of economic data during the upcoming week should provide food for thought for many economists.
Behind the second door of the economist’s calendar will be US Manufacturing PMI, made all the more pertinent as the American Manufacturing sector has struggled of late, showing contraction for the last three months. Acting as a leading indicator of economic health, the data will prove important as businesses tend to react quickly to market conditions, with their purchasing managers holding perhaps the most current and relevant insight into their respective company's view of the economy.
The second half of the week should focus more on central banks, as here in the UK our own Bank of England Governor and Monetary Policy committee members testify in front of parliament. Such hearings tend to have an amplified effect on sterling as those who are testifying have the final say on future monetary policy with the bank commenting on their outlook for both inflation and the UK’s future economic outlook.
The end of the week is wrapped up, as always during the first Friday of the month, with US Non-Farm Payroll data. A key piece of information when determining the US central bank’s next rate move, the employment data will be accompanied by Average Hourly Earnings, allowing us to gauge how inflation may manifest in the coming months.