Weekly Market Update

19/11/2018

It was a significant week for Brexit negotiations. The EU and Theresa May agreed a draft deal which was backed by the cabinet on Wednesday. However, there were several resignations from ministers clearly arguing that the deal did not meet the mandate of the 2016 referendum.

Massive political uncertainty still hangs over Theresa May, with investors worried that a possible no-confidence vote might have crystallised over the weekend. It remains unclear that the deal will get through parliament in its current form, raising the prospect of further political volatility ahead.

Italy’s government debt sold off sharply after the country’s government told the European Commission that it would forge ahead with its fiscally aggressive budget. Italy continues to defy calls from Europe to reverse its plans on public spending.

Signs are growing that the Italian economy has already been weakened by the recent political uncertainty and tighter credit conditions. The premium in yield investors demand to hold Italian debt over Germany’s also widened further, hitting its highest level since the end of October and reflecting a further deterioration in Italy’s bond market. Financial sanctions could be one option that European officials use to add pressure but that would likely add more fuel to the fire. For now, the political fight continues to take a backseat to Brexit, but another round of the eurozone debt crisis could be in the offering.

Elsewhere in Europe, the German economy contracted for the first time since 2015 in the third quarter. Europe’s largest economy shrank by 0.2 per cent between July and September, as global trade disputes had a knock-on effect. However, ECB chief Mario Draghi played a confident note on the outlook for the Eurozone economy, in his latest speech at the European Banking Congress in Frankfurt. This followed US Fed vice-chairman, Richard Clarida, who reportedly declared that interest rates in the US were near neutral, providing some relief to nervous investors.

UK retail sales fell unexpectedly in October. Sales were down 0.5 per cent last month, missing expectations of a 0.2 per cent rise and another sign of how slowing consumer confidence is hitting the sector. In contrast, US retail sales rose 0.8 per cent in October, coming in stronger than the 0.5 per cent expected by economists. Car sales boosted the figures, as did sales of building materials, likely driven by rebuilding efforts in the aftermath of Hurricane Florence.

UK inflation unexpectedly remained steady in October, at 2.4 percent. The pattern appears below Bank of England’s forecasts and there is some evidence that inflationary pressures are subsiding. A mix of slowing inflation and faster wage growth should mean workers see their buying power improve for the remainder of this year. The inflation figures followed wage growth data, which found pay growth accelerated in the three months to the end of September. Pay increased by 3.2 per cent over the past year, the fastest rate since 2008.

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One comment on “Weekly Market Update

  1. avatar
    Tony Goring on said:

    Seems odd that the slump in the FTSE 100 during the week in question is not mentioned.

    Reply

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