Please find attached our Weekly Digest.
A positive week for Global Equity Markets, supported by an encouraging start to the US earnings season and a breakthrough in Brexit negotiations, closed last week on a slightly softer note, with US equities down by 0.3% in Dollars and European equities falling by a similar amount. Partly to blame was the publication on Thursday of the International Monetary Fund report on global economic growth prospects, which forecast the weakest growth since the financial crisis and also highlighted a build-up in corporate debt as a key risk. Another factor was the announcement that Vice President Pence will be giving a long-awaited speech on China this week, that is widely anticipated to be hawkish. Following on the heels of the Hong Kong act, passed by Congress last week, the political pressure on China to push back is building. In addition, the news that the DUP would not back the Boris Brexit deal removed some of the gloss.
For the week as a whole, World equity markets rose by around 1% in Dollars, but fell by 1% in Sterling, as strength in the Pound translated global returns into lower local currency returns for UK investors. This is the reverse of the 2016 Brexit Vote situation, which may see UK investors negatively “surprised” by the performance of globally diversified portfolios in the event of a “happy” Brexit outcome. The US earnings season has also been supportive so far, delivering encouraging results.
On Brexit: With all eyes on the looming Brexit deadline of October 31st, widespread despondency at the situation turned last week to hope, that an acceptable deal might be possible. Only for those hopes to be set back by the extraordinary Saturday session of the UK parliament, culminating in the government withdrawing the scheduled “meaningful vote” on the Brexit deal and, in compliance with the so-called Benn act, sending a request for an extension to the Brexit deadline to January 31st 2020 to the European Council.
This morning, Asian markets are little changed, but have a small positive bias. A broadly hopeful position on the likelihood of material progress on Brexit also appears to be reflected in UK equities this morning (financials are outperforming) and only a small fall in Sterling.
Looking ahead, this week is one of the peak weeks for quarterly earnings reports, with the UK and European seasons picking up pace alongside the US. AstraZeneca, Barclays, Bunzl, HSBC, Lloyds, RBS, Reckitt Benckiser, Renishaw, Travis Perkins and WPP are large cap names from the UK that are expected to give an update. Novartis, SAP and Valeo are scheduled to provides updates in Europe whilst, Amazon, Microsoft, Paypal, Roper Technologies, Thermo Fisher Scientific and Visa are all reporting in the US.