Weekly Market Update

09/10/2017

A positive week for the US economy as signs of economic strength and renewed optimism over potential tax cuts sent US stocks ahead. The US trade deficit narrowed while exports reported strong figures. The jobs numbers were relatively static but more importantly wage growth rose 0.5 per cent in September, providing some evidence that inflation will likely rise from here and will certainly increase market expectations that the Federal Reserve will hike interest rates in December.

Questions were raised over Theresa May’s future as British prime minister following a lacklustre party conference in Manchester. This was meant to be an opportunity to assert her authority, following her decision to call a snap election backfired. Unfortunately, the speech did not go as planned and the talk about behind the scenes is now whether she stays or goes. That is a massive distraction as the UK faces this unprecedented challenge of Brexit. Even if the prime minister resigned, there is no obvious successor because of rivalries and divisions within the party.

Sterling suffered from that poor address due to the uncertainty it created for the Prime Minister’s future and the path for Brexit. With the Tory Party conference out of the way, sterling is likely to continue to be put under pressure as the focus returns to the state of Brexit negotiations, the economy and the weak UK balance sheet.

Catalonia voted for independence from Spain in an unofficial referendum that was pledged with violence. The ramifications of the referendum have been keenly felt in Spain’s equity and bond markets. Financial stocks were hit the hardest, with banks based in Catalonia, notably Caixa Bank and Sabadell, being hit the hardest. Sabadell has already decided to move its legal headquarters out of the region.

The vote in Catalonia, which was ruled illegal by Madrid, was overwhelmingly in favour of independence, and the Barcelona-based Catalan government has threatened to secede in the coming days.

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