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Weekly comment: 04.11.19

Market comment – Alan McIntosh, Chief Investment Strategist

US shares led the charge last week bolstered by three factors. Firstly, the US Federal Reserve cut interest rates for the third time this year. (Although this event was well anticipated there was always the residual risk that it didn’t happen.) Secondly, Friday’s US labour market data showed an economy that continues to generate a strong increase in jobs. Combine this with annual wage growth of 3%, comfortably above inflation, and you are left with a nice rise in disposable real incomes. Thirdly, translate that into the commentary from the US corporate sector (currently in the throes of reporting quarterly earnings) and you hear a message that, while certain parts of the economy are being negatively impacted by trade tensions with China, the vast majority of businesses are performing pretty well. The US always seems to trade at a valuation premium to other stock markets, but it also happens to be home to many of the more exciting, faster growing companies available to invest in around the world.

Halloween came and went and we’re still here (in the EU that is!) The forthcoming general election looks pretty open at present, although once the parties publish their manifestos, we will get a better sense of whether this is the 2016 referendum all over again or whether voters will look beyond the Brexit issue to other things that matter. Sterling remains close to the levels achieved after Boris had his “deal” ratified by parliament, with any immediate risk of crashing out of the EU without a deal having receded. The UK stock market is instead taking its lead from a newly invigorated US. This is likely to remain the case until we get stronger signals about who will form the next government.

Economic overview – Richard Carter, Head of Fixed Interest Research

It has been an eventful few days on the macro front and fortunately the news was generally pretty good. On Wednesday night, the US Federal Reserve cut interest rates once again as they continue to try to head off an economic slowdown. This was followed up by a better than expected US jobs report as well as upbeat comments from the President Trump and his top officials about US-China trade talks. A slight fly in the ointment was the US ISM manufacturing index as it fell further into contraction, although some of the closely watched components like new orders actually showed some improvement. Given all this, it seems likely that the US Fed will hold off from further interest rate cuts until the spring of 2020.

UK headlines were obviously dominated by the election. The polls look good for the Tories but there is a long way to go yet and the focus may well move off Brexit and onto domestic priorities. Both main parties seem to have discovered a magic money tree and plan a post-election splurge which should go down well with voters after several years of austerity. UK gilt investors may get nervous about this further down the line but bond markets remain focused on Brexit as well as global factors at the moment.

This week, we will also receive a number of service sector PMI readings and will also hear from Christine Lagarde, the new ECB President.



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