The week where another General Election was confirmed.
Weekly market review and outlook: General Election
Review: 28th – 1st November
Earlier this week a Christmas General Election was confirmed, giving one last chance for the British public to cast their vote before the revised Brexit deadline. Boris Johnson has stated that should he be elected, the Brexit deal agreed in Brussels this month will be delivered; whilst Labour and the SNP are promising a second referendum which could see Brexit reversed. Let’s just hope politics doesn’t divide the Christmas spirit!
It has been a relatively positive week for markets with US, European and Asian indexes all rising. The S&P 500 hit record highs on Monday following the optimism surrounding progress in US-China trade talks and the expected Fed cut which was more than inevitable when looking at Fed future probabilities. This optimism pushed the 10 Year Treasury Yield past the 1.85% mark mid-week. However, this optimism tailed off during the latter end with yields dropping back to 1.7% following China’s concerns over the long-term nature of a trade deal. This highlights the impact that trade-war speculation is having on markets currently with investors scrutinising every slight move.
US GDP figures were released on Wednesday with results coming in ahead of consensus estimates by 30-bps. The 1.9% growth recorded displayed the continued drive from consumer spending in the economy. Despite these better than expected results, it is important not to look past the fact that GDP growth over Q3 still shows a slowdown compared to the previous quarter, with business spending and private domestic investment continuing to decline.
Chinese manufacturing data released early on Friday showed the highest level of expansion in two and a half years, giving a boost to Asian stocks at the end of the week. With China being the world’s largest exporter, this has some recognition from a global economic standpoint too. These figures should help relieve some of the pressure China has been facing over recent weeks.
The week ahead: 4th – 8th November
Next week’s action is fairly quiet in terms of economic releases. Final readings for manufacturing PMI’s are released by the Eurozone powerhouses Germany and France. There shouldn’t be any serious surprises in these figures. An important release scheduled for Tuesday is the UK’s services PMI which is expected to rise to 49.8 according to consensus estimates, just shy of expansion territory. The services PMI is a reasonably reliable proxy for the UK economy so any improvement here will be welcome to UK-exposed investors.
Eurozone’s largest economy, Germany, releases industrial production figures on Thursday next week with estimates expecting production to fall back into negative territory following marginal growth in August. Germany has been heavily impacted by the trade war, Brexit and disruption in the car-making industry and as a result of this production figures have been hit. Investors will be looking at these figures to assess the extent of damage Germany has continued to face over the last few months and whether a recession seems to be edging closer. Given Germany’s position in the current economic backdrop, it is likely this dampened industrial outlook will continue to drag on.
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