Please find this week’s edition of Weekly Digest attached.
Last week was another turbulent week in politics in the UK and America, accompanied by a decidedly weaker tone to economic data, (notably the global purchasing managers’ indices of sentiment in manufacturing and services), which saw global equity markets fall by 1.0% in dollars and by 0.8% in sterling.
The UK stock markets fell far more than the global average last week (over 3%) as we suffered from a combination of three adverse factors. Firstly, the Brexit path remains unclear following the lukewarm reception of Boris Johnson’s proposals to the EU. Secondly, the UK markets’ high exposure to cyclical names had a negative impact as global economic concerns rose and commodity prices fell (oil last week was off 6%). Finally, the icing on the cake was the UK market’s exposure to Hong Kong through the key financial companies of HSBC, Standard Chartered and Prudential. As an aside, today HSBC has announced a programme of 10,000 job cuts.
The week did, however, finish on a stronger note in the US as the release of monthly employment data was well received. The number reported was slightly weaker than forecast but this was offset by decent upwards revisions to the previous two months’ data. In addition, the headline unemployment rate fell to 3.5%, a new 50 year low, and the hourly earnings growth rate of 2.9% gives workers a handy positive margin of real wage growth. Altogether, the data allows room for the Federal Reserve to cut interest rates, but does not suggest it is materially behind the curve.
The lead Chinese negotiator Liu He is due to visit Washington this week, though a report published on Sunday suggested that the Chinese are ‘increasingly reluctant to agree to a broad trade deal’. In other news over the weekend, it was reported that another whistle blower had come forward, this time with first hand testimony of the events that have led to the Democratic Party starting impeachment proceedings against President Trump. Separately, Donald Trump has announced the complete withdrawal of US troops from Syria, a move which had been vocally resisted by former defence advisers.
For the week ahead, the focus will be on inflation data for the US and Europe on Tuesday and Thursday, along with the release of the minutes from the Federal Reserve’s most latest monetary policy meeting on Wednesday.