It's been a week of inflation rates, unemployment figures and weak sales reports, but Brexit still took over the news.
Weekly market review and outlook: New Brexit deal dominates the headlines
Review: 14th – 18th October
We’ve had another amazing week of political developments which have overshadowed the general market and economic chatter, but in the UK Brexit undoubtedly has a part to play in corporate and economic results that have been published. The number of companies suggesting weaker trading conditions are mounting and on Tuesday we had the latest set of unemployment numbers published which showed that in August 56K fewer people were in employment than the previous month. This was enough to lift the unemployment rate from a lowly 3.8% to 3.9% and the immediate response was that this was a sign of the damage being done by the uncertainties caused by Brexit.
The inflation figures also showed signs of a lack of demand pressure, with figures staying at 1.7% as energy prices drifted lower during September. The month-on-month retails sales figure for September remained flat with ONS data suggesting consumers bought fewer non-essential items, while retailers dropped prices to keep our spending going. However the year-on-year figure of +3.1% suggests consumers have not capitulated.
Other data releases from around the world produced more evidence of the slowing global economy, industrial production data from the Eurozone and Japan were weak showing reduced activity. While the German ZEW index showed more evidence that Europe’s largest economy was on the brink of recession. Finally, US retail sales were weak and Chinese GDP showed the economy slowing further to 6% during the third quarter.
The week ahead: 21st – 25th October
The newsflow into the weekend is dominated by the new Brexit deal that will be placed to Parliament to vote on, the first time that Parliament will sit since the Falklands war.
At the time of writing, the betting suggests the deal will be narrowly rejected which is likely to trigger a reversal of the gains we have seen over the last week in Sterling, some of the UK focussed companies and the FTSE 250 index. An approval of the deal will naturally lead to Sterling surpassing the $1.30 level again and the belief that businesses will be unshackled from all the uncertainty, should in theory further help UK focussed companies share prospects.
However, an approval of the deal may come with caveats such as a second referendum being attached which adds another layer of complexities for markets to grapple with. Either way, we expect some big moves in Sterling on Sunday night when the currency markets open and on Monday morning as the stock market opens.
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