Weekly Market Update 2018 12 03

Brexit Tension
There is now just over a week to go until MPs have the opportunity of a meaningful vote on Theresa May’s Brexit withdrawal deal. Current voting intentions indicate that the deal will get voted down and the debate has been about how significant the defeat will be. No cabinet ministers have broken ranks to suggest what the “plan B” might be in such an event and if there would be a leadership challenge if the defeat was convincing. The loss of the first vote is now baked into market expectations and it passing would provide a surprise for markets. Some commentators are suggesting that the Sterling would rally to $1.45 if there was a higher degree of certainty as a result of a deal being passed.

Trade War De-escalation
Positive news for markets came out over the weekend as it was revealed that Presidents Trump and Xi have agreed to a temporary truce in the ongoing trade war. A 90 day “cooling down” period has been agreed, where no escalation of the current barriers to trade will occur. Markets have seen this as a sign that more good news may follow, with most markets rising by over 1% on Monday. However, Trump’s record of honouring agreements is not unbroken, and there is always a risk of him reneging if he feels the US is not making progress on their agenda in the negotiations over the next couple of months. Nevertheless, a significant negative risk for the global economy has been diminished for the time being and may provide the impetus for more positive moves in markets.

Oil Market
The sharp fall in the oil price over the last several weeks has prompted the Organisation of Petroleum Exporting Countries (OPEC) plus Russia to curtail production and better balance the market. Fears of oversupply and weakening demand growth had led to a 30% fall in the oil price, raising concerns in oil exporting countries that their revenues will suffer. Furthermore, action by Canada to also reduce supply took observers by surprise and may provide a floor in the oil price in the short term. The speed of change in the market appears to be becoming more aggressive as traders are trying to balance rapidly changing supply dynamics, a potential recession and political forces. Most forecasters expect prices of between $50-70 in the medium term although as seen over the last several years, this can change very rapidly.

Market Data
Index                              Open    Close    Change    % Change
FTSE 100                        6952    6980          28            0.40%
S&P 500                          2649     2760         111            4.19%
Dax                                   11192   11257         65            0.58%
Cac 40                               4946     5003         57             1.15%
Nikkei 225                        21646  22351        705           3.26%
UK 10 Year Gilt Yield      1.38       1.36       -0.02         -1.45%