Market Update November 2019
Posted: 1st November 2019 | Share
By Sarah Ryman
City A.M. led with a headline a few weeks ago inspired by my favourite Christmas movie… Love Actually. While the headline caught my attention, unfortunately the further political uncertainty caused by a UK election - which is now proposed for 12th December - has done little to boost morale and provide clarity for ‘UK plc’. Boris Johnson’s hope is that the move will break the Brexit deadlock and now the race is on to win seats in a great game of musical chairs. I wonder if Hugh Grant will join the fray.
Official figures released this month showed that British GDP grew by 0.3% in the third quarter of the year, narrowly avoiding falling into recession but nonetheless demonstrating that annual growth has slipped to its slowest pace in nine years. The improvement was thanks to a pickup in services and a return to growth in construction, both of which boosted the economy whilst manufacturing continued to stagnate. Having said this, the new ‘flash’ purchasing managers’ index from IHS Markit and the Chartered Institute of Procurement and Supply data released this month suggests that the economy is on course to shrink in the final quarter of 2019 as business activity fell in November.
UK inflation fell to its slowest rate in almost three years in October according to figures released by the Office for National Statistics this month. The Consumer Price Index (CPI) dropped to 1.5% from 1.7% which demonstrates that prices have fallen over the year. The main contribution to the move was a lowering of the energy price cap on electricity, gas and other fuel prices by watchdog Ofgem. Although this is below the Bank of England inflation target rate of 2%, probability of a rate move from the central bank remains very low.
UK inflation fell to its slowest rate in almost three years in October according to figures released by the Office for National Statistics this month.
While October saw an unexpected fall in UK retail sales, no doubt retailers will be hopeful the busy Christmas period will relieve some of the concerns facing our high streets. Meanwhile UK unemployment has stayed close to record lows of 3.8%.
Christine Lagarde has taken the helm as the new head of the European Central Bank (ECB) but is working within a challenging landscape. Manufacturing in the Eurozone has remained at a seven-year low with factory output still in contraction, according to data released this month. In addition, growth in the area is stuttering as the effect of damaging trade wars takes its toll. She has instructed Eurozone leaders to increase spending to boost growth in her first speech as president. “Investment is a particularly important part of the response to today’s challenges, because it is both today’s demand and tomorrow’s supply,” stated Lagarde.
On the upside, Germany narrowly avoided falling into recession in the third quarter thanks to unexpectedly strong consumer spending. German Chancellor Angela Merkel and finance minister Olaf Scholz have pushed back against calls for higher public spending in the country reiterating that the ‘black zero’ policy remained the guiding principle and that the government was still able to boost the economy.
The US Fed cut interest rates 0.25% as expected at the end of October which was the third time in a row but Federal Reserve President Jay Powell struck a more cautious tone than at past meetings suggesting that the central bank will not cut again this year. Figures released this month for October showed that inflation has hit a seven-month high.
US Federal Reserve chairman Jay Powell said that he foresees a “sustained expansion” of the country’s economy in a testimony to the Joint Economic Committee of the US Congress this month.
President Trump said that the United States and China were close to an agreement on the first phase of a deal, while stressing Washington’s support for protesters in Hong Kong, a point of contention between the world’s two largest economies.
The three main US stock markets surged to all-time highs this week as growing excitement about a US-China trade deal and ultra-loose global monetary policy sent investors running towards risk assets. The S&P reached just over 3,140 which is the highest point in its 60-year history, Nasdaq composite added 0.18% to 8,647 whilst the Dow hit a high of over 28,120.
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