Market Update October 2019
Posted: 1st October 2019 | Share
By Sarah Ryman
On my stroll to work I saw a sign that made me think of our current leader Boris Johnson as he enters final days of negotiation prior to his Halloween deadline: “When black cats prowl and pumpkins gleam may luck be yours on Halloween...”
While there have been glimmers of hope the journey to reach this point in the negotiations has been a very bumpy ride and it feels that we are still some way off of a clear resolution – the ripples of which are being felt near and far. This in conjunction with trade tensions and China debt reforms have impacted global economic growth with the International Monetary Fund (IMF) predicting growth will be just 3% this year which is the lowest level since the financial crisis.
International Monetary Fund (IMF) predicting growth will be just 3% this year which is the lowest level since the financial crisis.
On one hand Johnson seems to have made some progress with MP’s agreeing to support the Withdrawal Agreement Bill (WAB) which details the terms of Britain’s exit from the EU. However they stopped short of backing a timetable which would have paved the way for the UK to leave in time for the scheduled deadline. The EU has granted a Brexit delay until 31st January which will allow time for the legislation to pass and turn the agreement into law. As Johnson continues to work without a majority, the Prime Minister finally received the nod for a general election on the 12th December.
The IHS Markit and the Chartered Institute of Procurement & Supply’s services purchasing managers’ index slipped to 49.5 in September, down from 50.6 in August. A score lower than 50 indicates contraction and supports concerns about a recession for the British economy which similarly saw the biggest cut in employment in over nine years. The result of political uncertainty and global economic slowdown driven by the US-China trade war is taking its toll. Data published by accountancy firm BDO also showed that last month was the worst September on the high street in eight years.
UK productivity has fallen at the quickest pace in five years in the second quarter of 2019 official figures showed this month as Britain’s decade-long productivity crisis continues. Output per hour worked dropped 0.5%, productivity in manufacturing and services fell by 1.9% and 0.8% respectively year on year. However there has been some good news with retail sales having held steady in the third quarter of the year according to the Office for National Statistics.
German recession fears continued to mount this month with factory orders falling by more than expected in August. Economic data over the course of this month has continued to disappoint with investor confidence in the Eurozone falling to its lowest level in more than six years in October. Having said this, business confidence has stabilised this month according to a survey by the Ifo economic research institute in Munich.
Inflation in the Eurozone fell to its slowest pace in three years in September..
Inflation in the Eurozone fell to its slowest pace in three years in September, official figures showed this month, which has raised concerns over the direction of the single currency area’s economy. This may not be the strongest point for President Draghi to end his reign on and no doubt his newly appointed successor Christine Lagarde will have her work cut out. But policymakers in the European Central Bank have implied that they do not see any further monetary easing for the year despite a probable downgrade in Eurozone economic forecasts.
Unemployment in the United States has fallen to its lowest level in 50 years, casting some doubt on whether the US Federal Reserve will cut interest rates this month although probability of a 25bp cut remains at over 90% as I type. The jobless rate fell to 3.5%, the lowest level since December 1969, as employers added 136,000 non-farm jobs to the economy in September.
The US continues to evoke trade war tensions with the World Trade Organisation ruling that the US can slap punitive tariffs on $7.5 billion worth of goods from the European Union over illegal subsidies to Airbus.
US retail sales fell unexpectedly for the first time in seven months suggesting manufacturing weakness could be spreading to the broader economy.
The US and Chinese deputy trade negotiators launched a new round of talks this month aimed at resolving the two nations’ 15-month trade war and some progress appears to have been made. The US has agreed to suspend a 5% tariff increase due to take effect this month and China has also committed to increasing agricultural purchases along with the introduction of structural reforms. This news came as data out of China revealed that the Chinese economy suffered a worse-than-expected drop in imports and exports last month.
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