Weekly Market Update

16/10/2017

Global stock markets were in a positive mood, with several major indices reaching record highs, including Japan’s Nikkei which hit its highest level for 21 years. While markets continue to move ahead, the geopolitical risks remain, alongside the real risk of a deflating euphoria which could dent the strong growth momentum.

At the start of the week, Theresa May set out plans for a contingency scenario should no deal be reached. Michel Barnier, the European Union’s chief negotiator, subsequently described Brexit talks as being in a state of deadlock. Theresa May has been forced to delay the introduction of her flagship EU withdrawal bill in the face of a planned rebellion by pro-European Tory MPs who are working intensively across party lines to rewrite the legislation.

The rise in European markets was helped by a dissipation of the tensions between the Spanish and Catalan governments. After the disputed Catalan referendum on 2 October, a degree of calm was restored when Carles Puigdemont, the Catalan president, held back from a formal declaration of independence to seek dialogue with Madrid. Although the outcome of the current stand-off between the Catalan and Spanish authorities remains highly uncertain, markets rallied in relief that a full-blown crisis had been avoided for now.

German exports jumped the most in a year, boosting the trade surplus of the eurozone’s largest economy. Seasonally adjusted exports increased 3.1 per cent from July, smashing economists’ expectations of 1 per cent. The figures contrast concerns from some economists that a rise this year in the euro would weigh on exports.

The International Monetary Fund stated that it expects the global economy to grow by 3.6 per cent this year and by 3.7 per cent in 2018. However, the UK has had its growth forecast revised down as it is now a notable exception to a trend of higher global growth. The IMF predicted the UK economy would grow by 1.7 per cent in 2017, as the negative effects of Brexit start to show. Mr Hammond will be under further pressure over the state of public finances in his Budget next month, as weak economic forecasts derail the government’s plans.

Minutes from September’s meeting of the US Federal Reserve showed that officials expect an interest rate hike later this year but concerns over persistently low inflation continue to weigh on sentiment. In the wake of hurricane related production disruptions at oil refineries in the Gulf Coast area, gasoline prices soared. But underlying inflation remains relatively muted even as evidence suggest wages are starting to rise.

 

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