Weekly Market Update 2019 01 21

21/01/2019

Theresa May suffers Brexit Defeat

Tuesday last week saw the well-anticipated vote in Parliament on the Government’s EU withdrawal deal. The deal was widely expected to be voted down; however, the loss by 230 votes made history as the biggest ever government defeat in the House of Commons and was larger than anticipated. Conservative Brexiteers and Remainers both voted against the deal, alongside the DUP and the vast majority of opposition MPs. As promised the defeat prompted Jeremy Corbyn to call a vote of no confidence in the government, although it did not succeed as not even the most disgruntled Conservatives were willing to join sides with Labour. While we are no closer to knowing what the ultimate outcome of Brexit will be, the vote has accelerated the process, forcing Theresa May to consider compromise from all sides and propose a “plan B”. The markets were not nearly as volatile as expected, although as the situation develops, investors will begin price in the expected outcome more aggressively, predominately through trading the Pound.

US-China Trade Talks

The latter end of the week saw increasing market optimism as there were suggestions that some middle ground had been found between the US and China in their trade dispute. Plans were discussed to narrow the trade imbalance between the two countries, with China promising to make increasing levels of purchases from the US. While such a resolution would provide a “win” for Donald Trump to take home, a bilateral agreement would not resolve the longer-term issues as similar imbalances would arise elsewhere in the global economy. Nevertheless, any consensus would be seen as a positive for markets, and increasing economic pressures in China and political disruptions in the US give significant incentives for both sides to draw a line under the issue for the time being.

UK Retail Sales Falter

UK retail sales fell in December as consumers held back on spending after Black Friday and remained cautious on the outcome of Brexit. The volume measure of sales was down 0.9% (seasonally adjusted) in December on the previous month, although this was on the back of a substantial 1.3% rise in November. This will increase pressure on retailers already struggling with online competition and margin pressures. However, rising real wages, discretionary incomes and lower rates of borrowing over the last year have improved consumers ability to increase spending going forward, once confidence returns.

Market Data

Index Open Close Change % Change
FTSE 100 6918 6968 50 0.72%
S&P 500 2596 2670 74 2.85%
Dax 10887 11205 318 2.92%
Cac 40 4781 4875 94 1.97%
Nikkei 225 20163 20666 503 2.49%
UK 10 Year Gilt Yield 1.29 1.31 0.02 1.55%
Prydis

This article was written by Prydis

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