Weekly Market Update

14/01/2019

Despite the familiar line-up of threats and challenges, global markets made a positive start to 2019. Neither politicians nor central bankers have resolved any of the main concerns. Trade talks between China and the US were extended for an extra day, with hope mounting that a deal would be struck, while the US government shutdown rumbled on with little sign of a resolution. Throwing the complexities of Brexit into the mix it was surprising that markets managed to climb the wall of worry, with most major indices comfortably up over the week.

The UK Parliament resumed debating Theresa May’s Brexit deal last week. Rebel Conservative MPs joined forces with Labour to inflict a fresh blow on Theresa May’s government in a Commons Brexit vote. It means the government will have to come up with revised plans if Mrs May’s EU withdrawal deal is rejected by MPs this week. It could also open the door to alternatives, such as a referendum. EU members were only willing to offer clarifications and are opposed to reopening the talks.

It was no surprise that growth in the UK’s economy slowed in the three months to November, expanding at its weakest pace in six months. The economy grew by 0.3 per cent during the period, with manufacturers suffering their longest period of monthly falls in output since the financial crisis. UK industrial production also dropped at its steepest annual rate since 2013 during November, echoing weakness across Europe.

US consumer prices fell for the first time in nine months in December, dragged lower by oil prices, while core inflation remained firm near the Federal Reserve’s 2 per cent target. The Fed will take this as further proof that price pressures are building more slowly than some had feared based on the strong growth of the tight labour market.

The minutes of the December Federal Open Markets Committee meeting struck a much more market-friendly note than the press conference at the time. The switch in tone seemed to go down well with investors, while the Federal Reserve Chairman, Jerome Powell, expressed his opinion that he doesn’t see a US recession in the near future, despite the rising likelihood of slowing growth elsewhere around the globe.

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