In a week which saw the nation commemorate the failure of the Gunpowder Plot, a failed assassination attempt against protestant King James I by blowing up the Houses of Parliament, all eyes were again fixed on Westminster as fireworks of a more metaphorical kind grabbed attention.
The beginning of the week saw the Conservatives fire the starting gun(powder) on December’s election, with Sajid Javid promising to usher in a “new economic era” with increased borrowing for investment in infrastructure and the NHS. The Chancellor’s pledge came after his opposite number, John McDonnell, said that Labour would put £400bn to work in infrastructure spending as well as reforming the ‘dictating’ financial sector. Unsurprisingly, infrastructure stocks gained throughout the week on what seemed to be a broad consensus between the main political parties, with sterling ebbing and flowing as certain opinion polls were released.
From the City of Westminster to the City of London, Thursday saw the Bank of the England unleash Super Thursday, a plethora of domestic economic data. Among the data released, a 7-2 split within the Monetary Policy Committee caught the attention of analysts, with two dissenters now calling for a rate cut rather than a much-touted rise, keeping rates firm at 0.75%. It was noted that when looking through Brexit-related volatility underlying UK GDP growth has slowed materially this year, reflecting weaker global growth, driven by trade protectionism, with the domestic impact of Brexit-related uncertainties also weighing on the Bank’s sentiment.
Across the pond, Wall Street’s main indices eyed their fifth straight week of gains whilst also hitting almost daily record highs. Having been buoyed by news that China had reached an accord with the US to potentially remove tariffs in phases with restrictions on the more than paltry chicken industry being lifted entirely. Eight of the 11 major S&P 500 sectors were higher, with a rise in oil prices driving a 1.2% gain in the energy sector. Gold and other safe haven assets were the main victims of a surge in risk sentiment with gold sinking to $1,466.21 an ounce.
The week ahead
Next week is jam-packed with an abundance of economic data from all the major global economies.
China and US
Inflation will be a theme throughout the week with China, the US and UK all releasing inflation data. Chinese inflation appears well contained, while in the US and UK it is currently slightly below the 2% target. However, with tight labour markets and wage inflation beginning to manifest, inflation could surprise on the upside.
It is a busy week for the UK, with unemployment, industrial and manufacturing data also released, which should help provide a broad overview of the current health of the UK economy as we lead up to the General Election in December. The official unemployment rate stands at 3.9%, while wage growth is also 3.9%, meaning a real increase in wages which should stimulate spending. It will be interesting to see if the recent softer economic data and Brexit uncertainty has weighed on hiring.
Over in the US, President Trump will be speaking in New York on Wednesday covering trade and economic policy. Given the on-going trade wars with China this speech is highly topical and as such could have a significant bearing on markets. With Donald Trump entering an election year in 2020, certain economic commentators are suggesting a trade-deal could be on the cards soon as he looks for positive headlines to drive his popularity. Elsewhere in the US retail sales data is published. This provides insight into the economic health of the consumer, which accounts for around two-thirds of the overall GDP and is the heartbeat of the economy.
In what concludes a busy week we also receive updates from the Eurozone, with both the economic sentiment survey and GDP numbers from the Eurozone and Germany. If the Q3 GDP for Germany is negative it will be in a technical recession, highlighting that the trade war issues are not just confined to the US and China, and large exporting nations such as Germany are also feeling the pinch.