19th November – 25th November 2018

Front and centre of our thoughts this week include

With it being Thanksgiving week the amount of key economic data to be released is limited. Instead, focus is expected to remain on the latest Brexit developments and US trade tensions.

Focusing on economic data, though, Friday will be the highlight of the week as we get first estimates for November Manufacturing and Services PMIs (economic health indicators) across the Euro area and the US. As confidence in global growth wanes, we expect these latest PMIs to be heavily scrutinised. The Euro area has seen a real blow to its sentiment indicators in 2018, primarily due to the ‘open-ness’ of the economy. Weakness is perhaps unsurprising and we find it unlikely we will see any marked improvement unless global trade tensions start to dissipate. 

Unfortunately these tensions don’t currently look like they’re easing just yet as China’s President, Xi Jinping, and US Vice-President, Mike Pence, verbally sparred at the APEC summit over the weekend. Mike Pence confirmed that the United States “will not change our course until China changes its ways.” The summit ended on Sunday without a joint statement, which is the first time this has happened since the summit began in 1993.

On Wednesday we should hear from the European Commission providing its opinion on Italy’s proposed budget after their submission last week. It’s expected the EU will begin what is called an Excessive Deficit Procedure (EDP) – once this report is published by the Commission, the Economic and Financial Committee (EFC) will have two weeks to review it. Although the proposed budget deficit of 2.4% doesn’t look hugely excessive on the face of it (France have been running a higher budget deficit for some time), Italy’s debt as a percentage of GDP (131%) far exceeds the EU’s ceiling at 60%.

Friday marks the annual Black Friday event that follows Thanksgiving Day. Although initially a US phenomenon, retailers across the world now participate. Expect news flow around how retailers did over the weekend.

Going on in the engine of Brexit

Theresa May stated over the weekend that the next seven days “are going to be critical” – a statement even her largest enemies can’t disagree on.

Last week Prime Minister Theresa May managed to gain endorsement from her cabinet for her withdrawal agreement, which was welcomed by a host of high-profile resignations and a multitude of letters of no confidence sent to the 1922 Committee. Perhaps the biggest of the blows for Theresa May came as recently-appointed Brexit Secretary, Dominic Raab, handed in his resignation.

The latest update surrounding Brexit is the EU’s chief Brexit negotiator, Michel Barnier, proposing to extend the transition period out of the bloc until the end of 2022.

It will be worth keeping an eye on the DUP’s annual conference over the weekend, which is scheduled to take place this Saturday.

In the rear view mirror of last week we saw

The UK was in focus last week with plenty of data to digest. On Tuesday we started off with the latest employment report – in particular, the unemployment rate and wage growth. More recently, wage growth has been seen as the more important metric as consumers battle with elevated inflation. Wage growth (excluding bonuses) came out ahead of expectations, rising at an annualised rate of 3.2%. This result typically would have triggered a strengthening in sterling; however, the currency was very much in the grips of Brexit talks and the UK political situation instead.

Ahead of UK retail sales on Thursday we saw October inflation. Headline inflation came in slightly below expectations at 2.4%, while core (excluding the more volatile food and energy constituents) held steady at 1.9%.

UK retail sales were weak as they fell for the second consecutive month as UK consumers rein in the spending following a busy summer of the World Cup and heatwaves. With Christmas on the horizon, consumers have been tightening their purse strings as retail sales fell -0.5% in October. Although it’s unsurprising retail sales dropped following the busy summer, there were expectations that the strength over the summer could resume as we continue to experience real wage growth in the UK.

Italy’s standoff with the EU increased in intensity last week as it refused to reverse its plans to substantially increase government spending in an attempt to kick-start their economy. Current proposals are expected to see their budget deficit move to 2.4% of GDP; however, this is based on their assumption of optimistic economic growth supercharged by their fiscal expansion.

In the side view mirrors of corporate activity we notice

Shares in the large tobacco names were hit hard last week as it was reported the US Food and Drugs Administration will impose a ban on the sale of menthol cigarettes. The damage was most severe for British American Tobacco shareholders, with shares down around 10%. The UK-listed company was hit the worst as menthol cigarettes account for circa 25% of earnings as a result of their acquisition of Reynolds last year.

Shares in Vodafone had a rare jump, spiking more than 6% on Tuesday last week. Despite significant losses in the first-half, it confirmed it will be maintaining its dividend, sparking a positive reaction.

Source: Bloomberg. Figures are for the period 12th November to 16th November 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.

Opinions, interpretations and conclusions expressed in this document represent our judgement as of this date and are subject to change. Furthermore, the content is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or a solicitation to buy or sell any securities or to adopt any investment strategy. This note has been issued by Thomas Miller Wealth Management Limited which is authorised and regulated by the Financial Conduct Authority (Financial Services Register Number 594155). It is a company registered in England, number 08284862.

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