Weekly Market Update 2018 11 05

Global Equities Recover
Global equity markets recovered some of their losses last week, although most markets remain over 5% down from their recent highs. A technical pullback was combined with positive news on the US-China trade war, following the revelation that Donald Trump had ordered officials to draw up terms for a trade agreement between the two countries. While the news was positive, it is likely that the two sides are still some way from an agreement; nevertheless, any negotiations may delay the onset of further barriers in the near future. However, by Friday, the investor bullishness in equities lost some steam, with markets pulling back as some original concerns reasserted themselves. Central to this was the yield on 10-year US government bonds, which rose over the week, approaching previous highs.

UK Budget Boost
The Chancellor, Philip Hammond, surprised commentators last Monday by loosening the Government’s fiscal policy by more than expected in the budget. The recent boost to the Treasury’s finances, provided by the stronger than expected growth over the year, meant that the Chancellor was able to meet Theresa May’s NHS spending promise and provide a small tax giveaway. As a result, the deficit is expected to stay wider for longer. However, increased spending and lower taxes should also give a boost to overall GDP growth. Economists are predicting that the fiscal stimulus will provide up to 0.2% of extra GDP growth in each of the next two years. Nevertheless, on an economy that is already close to full employment and capacity, this is likely to also result in higher interest rates going forward.

US Mid Term Elections
US voters will go to the polls on Tuesday for the well-flagged midterm elections. The vote has the potential to shift power away from currently Republican-controlled Senate and House. Latest polls suggest that the Democrats will win control of the House of Representatives, although Republicans will keep the Senate. However, given the recent record of polls, the outcome remains uncertain. A split in control between the two parties will make it difficult for President Trump to push through controversial policies. Furthermore, a Democrat controlled house has the power to open investigations into some of the accusations against Donald Trump. Political bickering may mean that very little will be achieved by lawmakers for the remainder of the Presidential term. This may well be seen as a positive outcome by markets.

Market Data
Index Open Close Change % Change
FTSE 100 6939 7094 155 2.23%
S&P 500 2658 2723 65 2.45%
Dax 11200 11518 318 2.84%
Cac 40 4967 5102 135 2.72%
Nikkei 225 21184 22243 1059 5.00%
UK 10 Year Gilt Yield 1.39 1.49 0.1 7.19%