Investments

Market round-up 7-11 October

Andrew Triggs

Political discourse or Political discord? A common theme in recent months, and this week was no different, with continuing Brexit discussions and US-China trade war talks dominating column inches and keeping investors on their toes.

 

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 October 2019.

Brexit

Prime Minister Johnson held talks with Taoiseach Leo Varadkar on Thursday, which were declared as “detailed and constructive” and they “see a pathway to a deal”. This acted as precursor to resumption of negotiations in Brussels, where Stephen Barclay, Brexit Secretary, was due to hold talks with Michel Barnier earlier today. Sterling, so often viewed as the Brexit barometer, rallied on Thursday and Friday, breaching $1.26. The news also appeared to light a fire under UK mid-cap equities, the index up over 3% at the time of writing, with domestic facing sectors such as banks and housebuilders leading the way. The more internationally-focused FTSE 100 advanced slightly but was held back by the strength of sterling. UK equities were supported earlier in the week as monthly GDP figures indicated that it is unlikely for the UK to fall into a technical recession – two consecutive quarters of negative economic growth. The data highlighted that the UK economy is proving to be resilient, despite the ongoing Brexit noise.

US-China trade war

Donald Trump is due to meet with Chinese officials at the White House later today, with the market hoping some sort of deal could be struck to begin the reversal of a 15-month trade war that has weighed heavily on global economy, hitting the manufacturing sector the hardest. President Trump’s twitter account gave little away ahead of the talks, with his latest tweet declaring, “Big day of negotiations with China. They want to make a deal, but do I?” The talks may be complicated by Mr Trump’s actions earlier in the week, which saw him blacklist 28 Chinese entities. The list bans the companies from doing business in the US, and so far, there has been a clear focus on Chinese artificial intelligence and surveillance. Such bans have a far wider impact, affecting supply chains around the world and forcing companies to shift their manufacturing out of China, and for some back to the US. From an economic data standpoint, the US inflation print came in at 1.7%, slightly below both expectations and the US Fed’s 2% target. However, with a tight US labour market and an interest-rate cutting Fed, inflationary pressures remain on the horizon. There was positive news for the US labour market as weekly jobless claims unexpectedly fell. The report highlights the number of Americans filling applications for unemployment benefits; the falling figure illustrates the strength of the current job market.

Following a sharp spike in the oil price in September, driven by attacks on Saudi oil pipelines, the black gold price has generally traded downwards. However, after an explosion on an Iranian oil tanker on Friday, rumoured to be caused by missile attacks, we may witness a rebound in oil prices, which were up 1% on Friday.

Week ahead…

The coming week sees a truncated trading period as US markets close on Monday in observance of Columbus Day, a celebration of the anniversary of Italian explorer, Christopher Columbus’ landing on the continent in 1492.

Columbus Day

Although celebrated as “Columbus Day” in the US, the bank holiday’s name varies from country to country and in some Latin American regions is called “Dia De La Raza” (Day of the Race). And what a race it could be here in the UK as the Brexit finish line comes into view – potentially. With the Queen’s speech set for next week and the 31st October Brexit deadline drawing ever closer, next week could see a frenzy of headlines emanating from Westminster. Though cooler heads appear to be beginning to prevail, as recent talks between Boris Johnson and Leo Varadkar look to be progressing positively, with some chatter of a potential deal being reachable by the 31st. Whilst most will be focusing on political updates, the beginning of the week sees a raft of domestic economic news, primarily concentrating on the labour market. Tuesday will see the release of the UK’s Average Earnings Index, benefit claimant count change and overall unemployment rate all released together. With Brexit uncertainty hampering both the services and manufacturing sectors through delayed investment, the one bright spot for the economy has been a surprisingly resilient labour market.

Employment in the UK

Employment is usually one of the most valuable ways to gauge the strength of an economy. Figures are showing that average hourly earnings in the UK have soared to an 11-year high, comfortably exceeding the cost of living and statistics also show that unemployment is at its lowest rate since 1971 at only 3.8%. With potentially more Brexit related turbulence to come, both those in the City of London and of Westminster will be hoping for a continuation of such numbers.

Attention should switch to the US during the middle part of the week as the Census Bureau releases another piece of consumer linked data, this time retail sales. The data should act as the primary gauge of consumer spending, which accounts for most of the overall economic activity, adding emphasis to what can be an important data point.

The week will be rounded off by Chinese GDP data, measuring the change in the inflation adjusted value of all goods and services produced by the economy. The numbers will represent the broadest measure of economic activity and will serve as the primary gauge by which to judge the world’s second largest economy. With the added threat of no resolution to the ongoing trade war with the US, the numbers should make for fascinating reading when trying to isolate the impact US tariffs have had.