The FTSE closed at 7,582 this week, that's a 500 point move since the start of month. Sterling fell back to $1.30 having tested the $1.35 level on post election euphoria.
UK markets were in "catch up" mode having been left behind by big moves in the U.S.A. and Europe. No threat of a Corbyn agenda and hopes for a trade truce between the Washington and Beijing boosted sentiment.
The Johnson government pushed the withdrawal bill through the house, with a majority of over 120. We are leaving the EU at the end of January. The new trade deal must be completed by the end of 2020 to "Get Brexit Done", the deadline built into law. It even made the Queen's speech in a clear message to Brussels. Fears of a "no deal Brexit" increased and unsettled currency markets.
Sterling pulled back to find support at the $1.30 level as fears the end of year deadline may be a stretch to far. Hawkish sounds of "No EU Rules and Regulations" pushed the probability of a no deal even higher. The excitement of free trade deals with the rest of the world, is in danger of overwhelming the practicality of embedded transactions with the rest of Europe.
One step forward, one step back. Sterling will trade in the $1.30 - $1.35 band over the near term. The FTSE will require consolidation at the 7,500 level with support at 7,300. A test of 7,750 will require a more conciliatory message from Downing Street, to convince traders and business, a trade deal with Europe can be secured ...
Inflation holds, unemployment falls ...
Strong economic data this week, provided support to market moves. Inflation CPI basis held at 1.5% in November, unchanged from prior month. Goods inflation increased slightly to 0.6% as service sector inflation eased to 2.5%. Markets expect inflation to move towards 2% overall by the end of 2020, with no evident pressure from producer prices for the moment.
The number of people in work increased slightly in October with 32.8 million in work and just under 1.3 million unemployed. The unemployment rate was unchanged at 3.8%. Average earnings eased back to 3.2% in October. We expect the average increase to be around 3.5% in the final quarter of the year, representing a significant real income gain over the period.
Low inflation, a strong jobs market and real income gains boosted consumer sentiment. The GfK consumer confidence index jumped 3% in the latest poll. Households were more confident about the future and were more likely to commit to large purchases. The election result is likely to provide a further boost to sentiment and spending in the near term.
The MPC voted to hold rates this month, Just two members of the committee voted for a rate cut. Low inflation, and a soft economy held sway in the decision making process. The Bank will hold off pending a review of the implications of the Brexit process. Courtesy would suggest the new Governor will have the chance to set the pace for the year ahead.
Andrew Bailey, Bank of England lifer and former Chief Executive of the Financial Conduct Authority was appointed to the role this week. The appointment was considered to be conservative and safe. No excitement for the Old Lady of Threadneedle Street considered best for now.
Latest update for growth confirms of just 1% growth in the third quarter. For the year as a whole we expect growth of 1.3% this year with 1.5% a possibility next year. Want to know more? Don't miss our Brabners Quarterly Economics Updates in Manchester and Liverpool in January.
Of Democrats and Dishwashers ...
Congress voted to impeach the President. Trump had other things on his mind. In a rambling speech in Battle Creek Michigan, the President spent part of a lengthy campaign rally bemoaning the problems of plumbing and the poor performance of dishwashers.
"Women tell me they have to run their dishwashers multiple times" the President explained. "Remember the dishwasher?
You would press it and boom, there would be an explosion. Five minutes later you open it up, the steam pours out. Now you have to press it twelve times".
The President has a thing about water regulations, impairing the performance of showers, bathrooms and toilets. He also has a thing about low energy light bulbs which make him look orange apparently.
The President faces trial in the Senate. The Democrats are in no rush to set the date. In a six page letter to Nancy Pelosi, Trump complained of an unprecedented and unconstitutional abuse of power. The process cheapening the "importance of the very ugly word impeachment". It is to declare open war on American democracy. "More due process was afforded to those involved in the Salem Witch trials" the President complained ...
That's all for this week, have a great weekend. We will be back with more news and updates on the 4th January. We will take a break over the break, here's wishing you all a Great Holiday, Merry Christmas and Happy New Year ...
The Saturday Economist
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The material is based upon information which we consider to be reliable but we do not represent that it is accurate or complete and it should not be relied upon as such. We accept no liability for errors, or omissions of opinion or fact. In particular, no reliance should be placed on the comments on trends in financial markets. The presentation should not be construed as the giving of investment advice.