Market Update November 2018
Posted: 20th November 2018 | Share
One step forward, two steps back… but are we getting closer to Brexit?
The past month has been dominated by Brexit, with markets digesting the news of the deal that has been backed by Theresa May’s, the UK Prime Minister, cabinet. After a 5 hour, and no doubt emotive, debate on the content of the 585-page document at 10 Downing Street, the Prime Minister said we could accept "this deal, which delivers on the vote of the referendum, which brings back control of our money, laws and borders, ends free movement, protects jobs, security and our Union; or leave with no deal, or no Brexit at all." EU Commission President Jean-Claude Junker gave the go-ahead to convene European leaders at a special summit to rubber stamp the exit deal later this month.
The Bank of England’s (BoE) Governor, Mark Carney, told the Treasury Select Committee that a no deal Brexit would be the “worst outcome” for the BoE. He said that he expected May’s draft withdrawal agreement to “support economic outcomes” and welcomed the transition period which is due to end in 2020.
Since May’s cabinet approved the deal, there have been a number of high-profile resignations and the Prime Minister now faces a tough battle to pass final negotiations through Parliament and the EU – with critics both within and outside the Conservative party condemning the plan, accusing her of breaking promises and handing control back to Brussels.
Data released over the month has demonstrated that wages grew at their fastest rate in nearly a decade in the UK, unemployment rose from 4% to 4.1% in the three months to September, and Q3 GDP has improved. Inflation held steady at 2.4% which has ignited debate around UK interest rate hikes – although implied probability of a hike remains low.
Meanwhile, the US saw the Democrats take control of the House of Representatives in the mid-term elections which could restrict President Trump’s ability to steer his legislative agenda through congress. The Federal Reserve (Fed) Chair Powell made some cautious comments around the US economy, commenting that while the US economy is strong, the impact of fading fiscal stimulus and slowing demand may impact the American economy moving forward. The Fed did not change rates at their meeting this month and highlighted strong job growth and household spending, but slackening business investment.
In Europe, Italy defied a European Commission deadline to submit a revised budget, telling the EU it will not change its expansive fiscal plans. This could result in disciplinary measures for the Eurozone’s third largest economy – and possibly result in fines as a result of breaching budget rules. The President of the European Central Bank (ECB) has warned that inflation may rise more slowly than previously expected. Mario Draghi said that the Central Bank could change its plans to start raising interest rates late next year if borrowing costs rise too far or if inflation slows.
Equities markets have lost further ground this month as oil prices fell further and more evidence of a slowing Chinese economy was reported. Oil prices fell to prices last seen in March of this year on rising global supply and evidence of a slowing world economy. The US formally imposed sanctions on Iran this month, but granted eight countries temporary waivers allowing them to keep buying oil from Tehran.
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