Chief Investment Strategist
Market Overview, Alan McIntosh
Brexit matters came to the fore last week in a period when global equity markets continue to be pressured by concerns over slowing economic growth and monetary tightening. Theresa May’s draft withdrawal agreement prompted protest from “leavers” and “remainers” alike and led to the resignation of Brexit secretary Dominic Raab. His particular objection rests around the insertion of a clause that states that the “backstop,” which would see the UK stay in a customs union with the EU, would form the basis of a future trading relationship with the European Union. He asserted that he was unaware of this change until last Tuesday and it was against his vision of a free trade deal.
The pound fell to below $1.28 and UK companies with significant exposure to the UK economy saw their shares hit hard. This included high street banks such as RBS and Lloyds, housebuilders, retailers and utilities. In contrast, shares in companies with a predominance of overseas earnings (the majority of the FTSE 100) saw their share prices rise, bolstered by the weaker UK currency. There are still many hurdles ahead, including the possibility of a “no confidence” vote in Theresa May and, of course, getting the draft withdrawal agreement through parliament. UK equities are likely to continue to be volatile during this period.
Economic Overview, Richard Carter
The Brexit process edged closer to a constitutional crisis last week with the draft withdrawal agreement managing to attract opposition from across the political spectrum. Where this all ends up is anyone’s guess and the only certainty as far as the UK economy is concerned is uncertainty. Theresa May could face a vote of no confidence this week if the ERG manage to get to 48 letters but she will probably win it. The Prime Minister will then hope she can extract some more details and concessions from the EU at the summit on Sunday otherwise there will be a few more empty chairs around the cabinet table.
Given the political news, it is almost inevitable that the UK economic data will weaken in the months ahead particularly relating to the housing market and business investment. One crumb of comfort is that most MPs seemed determined to prevent a no deal scenario; less comforting is that the ultimate beneficiary of the chaos will probably be Labour and Jeremy Corbyn.
Away from the UK, there was little to cheer with the data out of China getting softer and both the German and Japanese economies contracting in Q3. On a positive note, US inflation numbers were fairly tame which eased some of the concerns about tighter Fed policy. Going forward, the big issue for global investors is US/China trade ahead of a G20 summit at the end of the month. There has been some talk of a deal being in the offing but hawkish rhetoric from VP Pence over the weekend suggests we shouldn’t get our hopes up.
Investors should remember that the value of investments, and the income from them, can go down as well as up. Investors may not recover what they invest. Past performance is no guarantee of future results.
Any mention of a specific security should not be interpreted as a solicitation to buy or sell a specific security.