Market Overview – Alan McIntosh, Chief Investment Strategist:

Global equity markets had a good week, bolstered by a clutch of positive company earnings in the US and more favourable noises coming from the US / China trade talks. Roughly one-third of US companies have announced their third quarter numbers, with around 80% beating market forecasts. This has been a familiar pattern for many quarters now, with expectations running low going into the reporting season, then the majority of companies exceeding consensus numbers. What is more important about this quarter, however, is the recent talk of potential recession in the US and a fear that many companies would disappoint in the current announcement period. So far, so good, with most companies navigating a tougher economic backdrop reasonably well.

There is also greater optimism that the US and China can agree an early stage accommodation on trade, which will reduce the likelihood of further tariffs being imposed on goods moving between the two economic blocs. This would certainly remove some of the key concerns over global trade and further reduce the risks of a (largely) self-imposed recession. A further cut in interest rates from the US Federal Reserve later this week should add to the more positive tone.

Economic Overview – Richard Carter, Head of Fixed Interest Research:

The UK was meant to be leaving the EU this week but instead a 3-month extension has been granted and it looks like Boris Johnson will have to reluctantly accept. When the last extension was granted back in April, Donald Tusk implored the UK not to waste the time but unfortunately it seems to have done precisely that with Parliament still gridlocked. It looks likely that the next three months will be used to hold a general election although the Fixed Term Parliament Act is massively complicating the process. Each political party understandably wants to fight the election on their own terms so agreeing when to hold it may take some time but it seems that this is where we are headed. Whether it resolves Brexit is debatable but the polls currently look favourable for the Tories – the question will be whether Farage and his Brexit Party manage to split the Leave vote and open the way to a Remain coalition taking power. Currency markets continue to watch and wait.

Elsewhere, we are likely to see a 0.25% interest rate cut from the Federal Reserve on Wednesday. Global economic data has continued to weaken and they remain under pressure, not least from Donald Trump, to support growth. Further cuts from here will depend on how the data evolves but there is a bit more optimism on the trade front at the moment as US/China negotiations continue. This week, the ISM, nonfarm payrolls and US Q3 GDP will be released. Christine Lagarde also takes over from Mario Draghi as ECB President.

Written by

Richard Carter
Head of Fixed Interest Research
Alan McIntosh
Chief Investment Strategist

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