With the UK in full focus last week (more on that below), this week we have inflation and retail sales to look forward to on Wednesday and Thursday respectively. Headline inflation is expected to tick up further to 2.7%, partly due to the rising oil price we have experienced over the past year (Brent Crude oil has risen from $55 per barrel up to around $78 in the past twelve months). Retail sales for August are expected to fall slightly for the month, which is unsurprising considering the strength of July due to the hot weather and the World Cup boosting consumer spending.
Following a tough six month period for sterling, the past month has seen the currency strengthen following indications we may be moving closer to a Brexit deal than previously anticipated, dissipating concerns around a ‘no deal’. Sterling has begun the week holding above $1.30 as we move towards a meeting with EU leaders in Salzburg on Thursday, where we expect Brexit negotiations to be at the forefront of the leaders’ discussions. Despite ongoing criticism of Theresa May’s Chequers plan, the Prime Minister (PM) has told the BBC that MPs alternative option is simply no deal at all.
If this remains her stance, then we would expect rumours of a leadership contest to continue – it was reported last week that 50 members of the European Research Group met to discuss how, and when, they could force Mrs May to stand down as PM. A leadership contest can be triggered if the leader resigns, or if 15% of Tory MPs write to the chairman of the backbench 1922 committee, demanding a vote of no confidence
US housing is in focus this week. More recently, some signs of moderation have appeared, with existing home sales falling for four months in a row as consumers attempt to deal with the impact of rising interest rates. Despite dealing with this, consumer confidence remains near historic highs and as such, estimates for existing home sales, released on Wednesday, are for a rebound with growth of +0.6% for August.
While on Thursday we get the latest look into the health of the US housing market, Friday sees the release of survey data about the US manufacturing and services sectors in the form of Purchasing Managers Indices (PMIs). We get the first estimate of both PMIs for September, with both expected to tick up marginally.
The Bank of Japan (BoJ) takes on the baton from the European Central Bank (ECB) with respect to whether there will be any changes in monetary policy. The mid-week meeting is not expected to spring any surprises, with no change expected as they continue their battle with below-target inflation.
While slow-and-steady is the motto for developed market central banks raising interest rates, some of their emerging market counterparts have had to react much more quickly as they battle currency crises. Indeed, just hours after Turkish President, Erdogan, called for a reduction in interest rates, the central bank sharply raised the benchmark rate to 24%. Judging by the market’s reaction, this was the right call as it halted losses in the lira, pushing it up 3% against the US-dollar.
The UK dominated newsflow last week, with a mixture of economic data, politics and central bank news keeping investors busy. On balance, economic data was relatively positive last week, which was kicked off with better-than-expected UK GDP growth for July on Monday (perhaps unsurprising due to the strong consumer spending experienced). The following day we had July’s employment report to pick apart, which included the unemployment rate holding at 4.0%. Wage growth was our highlight of the report as earnings grew by 2.9%, ahead of consensus, meaning UK consumers continue to benefit from real wage growth and join the US with growth seemingly picking up. Having said that, it’s worth bearing in mind the US has had the added boost from their tax reforms that allowed firms to provide one-off bonuses and increase minimum wages.
The Bank of England (BoE) also met last week, and kept their interest rate on hold, as they continue to monitor the effects of raising them last month by 0.25%. The Monetary Policy Committee’s (MPC) vote was unanimous at 9-0. Mark Carney, BoE governor, also made headlines for a couple of further reasons. Firstly, it has been confirmed that he will extend his tenure by six months until January 2020 to provide some continuity during Brexit. Following that, he delivered a stark warning of the impact that a ‘no deal’ Brexit could have on the economy, including a property crash that could see house prices fall by a third.
The ECB’s meeting on Thursday was free from any major surprises as they also voted to keep interest rates on hold, whilst reaffirming that they expect them to remain at current levels until at least next summer. With regards to their quantitative easing programme, they confirmed they will reduce the monthly pace of net asset purchases to €15 billion after September, before ending them after December of this year.
US data was relatively mixed. The NFIB Small Business Optimism survey started the week in the positive fashion we have grown accustom to for the US, beating expectations and jumping to its highest level since the index began in 1974. However, August retail sales disappointed by coming out below expectations.
The world's first $1 trillion company, Apple, last week revealed their hotly anticipated new iPhone models. Included within these models was their new XS Max, which will be the largest and most expensive phone they've made - at least for another year! Although the increased price, $1,099, will likely see sales volumes of the model below previous ones, the increase in average selling price should more than counteract that. Investors were left impressed, with the share price rising 2.5% for the week.
Geely, Chinese automotive manufacturer, has delayed its plans to float shares in Volvo due to concerns over the company’s valuation following a recent downturn in automotive stocks, in the midst of a global trade war. It was believed that Geely had backing secured that valued Volvo at $30 billion, however the Volvo chief executive, Hakan Samuelsson, confirmed “the timing has to be optimal”, hence the plans being halted indefinitely.
Source: Bloomberg. Figures are for the period 10th September to 14th September 2018.
Where the index is in a foreign currency, we have provided the local currency return.
The above chart provides the performance for the three developed market geographies where the TMWM MPS portfolios maintain their largest exposure. All investments and indexes can go down as well as up. Past performance is not a reliable indicator of future performance.
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