Weekly Market Update 2019 01 14

UK GDP Slows

Data from the Office for National Statistics (ONS) showed that the three-month rolling measure of GDP in the UK slowed in November falling to 0.3%, down from 0.6% in the third quarter. The service sector continued to be the biggest contributor to economic growth, although a contraction in manufacturing and production dragged the headline figure lower. Furthermore, recent data suggests that the final month of the year may also be challenging. Retailers reported a difficult Christmas trading period, citing consumer caution ahead of Brexit as a primary reason. Nevertheless, real incomes are now growing, and if the political clouds clear, the economy could see a rebound as individuals and companies release some stifled demand.

US Inflation Falls

Inflation figures in the US released last week showed that annual price growth slowed to 1.9% in December, down from 2.2% in November and in-line with expectations. The primary driver of the decrease was lower fuel costs, with gasoline prices falling 7.5% month-on-month. Furthermore, the fall in oil prices has not entirely passed through to inflation figures, as crude price changes can take up to a year to fully materialise. This should continue to suppress headline inflation over the coming months.  While core inflation remains above the 2% Federal Reserve target, the lower level of headline inflation will increase calls for the central bank to slow down or pause its programme of interest rate rises. Markets are already pricing in a pause in the Fed policy so any deviation from this may prove to be a surprise.

Markets rise from lows

Following a slightly bumpy start to the year global equity markets and risk assets have rebounded somewhat from the lows seen at the end of 2018. While none of the significant market risks has subsided, some bargain hunting has taken place following such a sharp fall in asset values. Furthermore, some more positive noises surrounding the US-China trade war negotiations has given investors hope that one of the major negative risk factors may be resolved soon. At a company level, the US earnings season will provide investors with an insight into the real state of the economy and whether or not current share prices are realistic.

Market Data

Index Open Close Change % Change
FTSE 100 6837 6918 81 1.18%
S&P 500 2531 2596 65 2.57%
Dax 10767 10887 120 1.11%
Cac 40 4737 4781 44 0.93%
Nikkei 225 19561 20163 602 3.08%
UK 10 Year Gilt Yield 1.24 1.29 0.05 4.03%