Please find below our Weekly Market Update for the week ending 1st November 2019.
Blue Sky Comment
Now we have an election in 6 weeks’ time, it is worth looking at the response of the markets here in the UK and the likely direction of travel thereafter.
The pound has strengthened on the news against most currencies, with the Sterling v Euro rate nudging 1.17…a far cry from near parity early in August.
As we thought, the UK smaller company shares sector has risen strongly over the last few days, in the hope that we are on the pathway to greater stability. The polls show the Conservative party leading the race but of course, even if they achieve the most seats, whether they get a majority is the question? Markets are currently expecting that a Conservative victory will deliver a deal.
A hung Parliament will extend the period of uncertainty and likely lead to an extension of Brexit negotiations. This will likely weaken the price of domestic stocks and the pound.
Predicting the outcome of the election is very difficult and no one can say with confidence what’s going to happen. The outcomes of recent elections and the referendum should be a reminder of how uncertain the outcome may be.
Today, the Purchasing Managers Index for manufacturing has confirmed another month of contraction. Actually, it was better than expected, but nevertheless it reinforces the impact of the Brexit impasse. The better than expected results may have been down to stockpiling ahead of the 31st October deadline. Perhaps the real worry is that we are seeing continued job losses in the sector.
If there is continued uncertainty into next year and data deteriorates, we may well be in for an interest rate cut of 0.25%. The pound would be expected to weaken, as would domestic stocks, but it may be a boost for the FTSE 100 as much of its earnings are from abroad, subject of course to how the global economic climate is looking.
In summary, whilst the recent rise in the value of some domestic stocks and indeed Sterling is to be welcomed, uncertainty rules the waves until the 12th December, albeit with a sprinkling of optimism.
At least we are positive about the England Rugby team…well most of us are! Enjoy the game and fingers crossed.