Weekly Digest – INVESTEC

Please find this week’s edition of Weekly Digest attached.

This looks to be a relatively quiet week for investors, with relatively few economic or corporate announcements. Last Friday’s release of second quarter GDP data from both the UK and Japan contained some surprises and helped maintain the trend in their currencies (sterling weaker, the yen stronger).  UK GDP at -0.2% was below any of the forecasts made by economists in the regular quarterly consensus data, with only a handful even predicting a decline.  The only positive signal came from consumer spending, though yesterday’s Retail Consortium numbers indicated the weakest consumer footfall for seven years and this does not portend as well for Q3.  Sterling weakened below €1.08 and $1.205 in response.

By contrast, Japan saw a surprisingly positive outcome for its second quarter economic growth, though much of this might have been a stock-building phase ahead of a potential introduction of higher rates of VAT by the Abe government.  Nevertheless the yen strengthened and is now up by more than 2% versus the dollar since the end of June.  This week the principal economic highlight will be Q2 GDP from Germany (due on Wednesday), where attention will focus on whether it has followed the UK into negative territory.  The majority of forecasts centre on either zero or -0.1%.

UK political headlines continue to be dominated by Brexit and the apparent momentum in Tory Central Office, suggesting that the party is preparing the ground for a snap election, though it is difficult to determine whether this would be held ahead of the October 31st Brexit date.  Other headlines are indicating a gathering of “Remainers” in Parliament who are intent on finding a legal mechanism to prevent Mr Johnson from leaving with no deal; this uncertainty is doing nothing to support sterling in the near term.

The headlines about weak consumer spending and lower footfall will not help the beleaguered retail sector (M&S traded at a 19-year low last week, as well as Kingfisher at a 10-year low), nor the share prices of two of its largest landlords – Hammerson and Intu – after many of the weekend papers highlighted the shorting behaviour of hedge funds and the high levels of debt relative to their (rapidly falling) equity market values.  On the corporate results timetable, there are few events this week, with most focus on Prudential who report on Wednesday.