“In the Bleak Midwinter
Theresa May may moan
Parties hard as iron,
Corbyn like a stone;
Pound had fallen, pound on pound,
Pound on pound,
In the bleak mid-winter
Not yet Long ago.”
Based on the poem by Christina Rossetti written 1872.
Pessimism seems to be dominating market sentiment with the US-China trade war impacting trader confidence, along with Brexit. UK Prime Minister Theresa May has survived a vote of no confidence, winning by 200 to 117 votes, yet we are still in the dark as to whether Brexit will materialise in the form of a Christmas miracle. In turn, May is now safe from a leadership challenge for a year and has vowed to deliver the Brexit “people voted for”. She claims to have listened to the concerns of MPs who voted against her and indicated that she would not be leading the Conservatives into the next scheduled general election in 2022. The Prime Minister’s cabinet allies have publicly demanded she puts Brexit in the hands of the Commons and allows MPs a string of votes on possible options in order to break the deadlock in parliament.
Meanwhile, the UK saw no change in interest rates this month and economic growth forecasts remain subdued, while employment data showed wages growing at their fastest pace amidst a tight labour market.
This month, the US Federal Reserve (Fed) had its last chance to review interest rates in 2018 this month and, in turn, decided to hike rates by 0.25% to a range of 2.25%-2.5%, as had been broadly predicted by markets. This is the highest level in a decade. President Donald Trump criticised Fed policy makers prior to the announcement – and again afterwards – stating that it would be foolish to hike interest rates. He also claimed responsibility for the slowdown in China, where retail sales grew at their slowest pace in 15 years. The Fed did, however, caveat a more dovish tone, highlighting that there would be fewer rate hikes in 2019. It said economic risks were “roughly balanced” but added it would “continue to monitor global economic and financial developments and assess their implications for the economic outlook”. Meanwhile, the Consumer Price Index (CPI) is on trend at 2.2%, the US unemployment rate is at its lowest in five decades and wage growth is at a nine-year high.
In EUROPE, the European Central Bank (ECB) announced the end of Quantitative Easing (QE) – as expected. Mario Draghi commented that inflation will decrease in the medium term and downgraded GDP growth in the EU, noting that downside risks are increasing. Manufacturing in the area has dropped to a three-year low, and services have fallen to their lowest level since November 2014.
The Organisation of the Petroleum Exporting Countries (OPEC) slashed oil demand projections this month and cut output in response to a glut in global supply. “Rising trade tensions, monetary tightening and geopolitical challenges are among the issues that skew economic risks even further to the downside in 2019”, OPEC stated. “The upside appears limited”.
While the market feels a little downbeat at the moment let us hope that the best of 2018 is the worst of 2019. In the meantime, myself and the Leumi team wish you a very happy and healthy festive season.
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