Weekly Market Update 2018 12 17


May’s Leadership Challenged

Shortly before her Brexit deal was due to be voted on by the House of Commons, Theresa May backed down from what was expected to be a resounding defeat. Soon after, disgruntled Conservative MPs reached the 48 letters required to force a vote of confidence in the her as the leader of the party. Mid-week was then dominated by speculation over the vote, which the Prime Minister ultimately won. However, while angry MPs were able show their frustration, we are no closer to resolving the real problems, that the current deal on the table is unlikely to ever get through parliament, it is unlikely to be renegotiated meaningfully and there is no majority for any other solution. Nevertheless, the increased prospect of a “no deal” Brexit during the turbulence led the Pound to continue its slide, reaching lows against the dollar not seen since April 2017.

UK Wage Growth Accelerates

Figures from the Office for National Statistics showed that the UK economy added jobs at a greater rate than expected during the three months to October. The level of employment increased by 79,000, and importantly there was a decrease in the rate of part-time employment. Furthermore, the regular earnings growth accelerated to 3.3% on the year, suggesting that the low rate of unemployment has finally begun to filter through to wages. The 3.3% growth in the rate of pay against an inflation rate of 2.4% means that UK workers are experiencing real income growth. Additionally, recent falls in the oil price and continued tightness in the labour market should see this trend continue.

European Central Bank finishes QE

As expected, ECB announced last week that they were going to end their historic quantitative easing programme in December, when the current rate of purchases of €15bn per month will end. The central bank will continue to roll over its stock of bonds for the foreseeable future and is expected to increase interest rates in the second half of 2019. Europe has had one of the largest programmes of quantitative easing in the world and investors will be nervously waiting to see if these actions will have an impact on the region’s financial markets, as a significant amount of liquidity is withdrawn. Furthermore, highly indebted countries, such as Italy, will be more exposed to the whims of the private debt markets, potentially leading to a greater amount of volatility going forwards.

Market Data

Index Open Close Change % Change
FTSE 100 6757 6844 87 1.28
S&P 500 2633 2599 -34 -1.29
Dax 10788 10865 77 0.71
Cac 40 4813 4853 40 0.83
Nikkei 225 21678 21506 -172 -0.79
UK 10 Year Gilt Yield 1.27 1.23 -.04 -3.15


This article was written by Prydis

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