This week has also seen the Fed October minutes, further trade talks in the US and more talk of interest rate cuts.
Weekly market review and outlook: General Election campaigns ramp up
Review: 18 – 22 November
This week saw the General Election campaign gaining momentum as Labour and the Liberal Democrats made their manifestos public, with the Conservative Party expected to release theirs on Sunday. The main talking points so far have included; Brexit, increased government spending on the NHS and education, and changes to taxation policies. The polls currently have the Conservatives ahead, with Labour hot on their heels and the Lib Dems losing a bit of traction.
Across the pond we saw the release of the minutes from the Federal Reserve’s October rate-setting meeting in which they cut rates for a third time this year. I believe this to have provided a supportive trading environment for US stocks, helping push them to record highs, as well as giving the economy a well-needed boost. However, investors must be cognisant of the high valuations we are seeing in the US relative to other markets. Can this be maintained? Margins are thought to be at, or near peak levels with trade tensions adding further strain – therefore naturally they will compress over time. If these and a number of other factors can’t be maintained then we could see a significant re-rating.
Trade talks have continued to drag on amid more disagreements between Washington and Beijing, further complicated by the protests and police crackdown in Hong Kong. Recent optimism on the progress of the trade deal had also supported markets in my view; however, this week we have once again seen the negative affects which a few inflammatory words from either camp can have.
Early readings of UK PMIs came in below consensus this morning and still remain in contraction territory, failing to sustain the momentum of the rebound we saw in October. The PMI in the all-important services sector fell to 48.6 while the manufacturing PMI dropped to 48.3. This gives another warning signal for a deteriorating UK economy, which has been heavily impacted by Brexit uncertainty with the effects further exacerbated by the national election. This cements the view taken by two of the nine monetary policymakers at the Bank of England (BOE), who voted for an interest rate cut earlier this month. The BOE should perhaps consider taking a leaf out of the Federal Reserve’s book before it’s too late.
The week ahead: 25 November – 29 November
Next week sees a few key figures coming out of the US, with a rise in sales of new homes and durable goods orders expected. Consumer confidence, despite being down from its summer peak is still near an 18-year high. This combination points to steady growth in the fourth quarter for an economy dominated by its consumer. Second estimates of US GDP figures should confirm the US economy grew at an annualised 1.9% in Q3 – a figure which is still respectable but indicates a slowdown in growth.
In the UK, this week’s poor PMI figures could be further compounded by weak consumer confidence data – potentially showing confidence to be at a six-year low. This is particularly pertinent as the UK, much like the US, relies heavily on consumers for its GDP. Data from the Bank of England is also expected to show a decline in consumer credit growth. These coupled together could be another sign of caution surrounding the future prospects of the economy.
The Conservatives are expected to release their manifesto on Sunday, with the main pledge of delivering Brexit by the end of January using Johnson’s renegotiated deal. Once this is done, the party plans to increase government spending across the NHS, education and police. Ultimately, they will be looking to renew their image as a strong leader, willing to unleash Britain’s potential.
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