Weekly Market Update

14/10/2019

Markets were driven by the same news flow that have dominated headlines all year, the trade war and Brexit. Although language turned positive towards the end of last week little has changed as we draw closer to some significant dates.

In terms of the trade, talk turned towards the possibility of an interim deal which would involve concessions from both sides. The US would delay the next set of tariff hikes whilst China would commit to further purchases of agricultural products. This would be a long way from a deal that the US has been pushing for, covering structural reforms and changes around intellectual property, but could be spun by the US administration as a policy success at a time when Trump is getting bogged down domestically with the impeachment investigation and attracting criticism from all sides for his foreign policy moves last week on Turkey.

Sterling strengthened following talks between Irish leader Leo Varadkar and Johnson which appeared to make better progress than expected. The UK Parliament is now prorogued (legally this time) ahead of the Queen’s speech today, after which Parliament may well vote to take control of the agenda again. Saturday the 19th is also the deadline for the PM to submit the extension letter to Brussels should no deal be agreed at the summit. The roadmap remains very uncertain; there’s a lot of talk in Westminster about the merits of a referendum then an election or vice versa, and plenty of noise about 28 November as an election date.

Elsewhere, UK GDP for August fell 0.1 per cent, worse than expected, while the three-month data for June, July and August at 0.3 per cent was strong enough to suggest that the UK would avoid a technical recession unless the data for September was extremely bad. The services side of the economy continues to keep the UK out of recession, the trend in the PMI data suggests that services are weakening, but the weakness is not yet enough for third-quarter growth to be negative overall. 

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