Weekly Market Update 2019 02 04

Parliament Votes
MP’s initially rejected Theresa May’s Brexit deal on 15th January by a record majority of 230, however, after a long sequence of debates, they returned to vote on a series of amendments last week. One of these was the majority rejection of a “no deal”, although this was an advisory only vote and MP’s would need to do something else to prevent it from happening, as it remains the default position. Secondly, there was a consensus on finding “alternative arrangements” on the Irish border issue, although there was little detail on what these arrangements were. Encouragingly though, there was a serious dialogue between remainers and leavers on the compromises that might be found. Nevertheless, the onus is now on the Prime Minister to take the negotiation back to the EU, who have so far resisted any suggestion of changing the deal. Uncertainty remains for the time being and traders are reluctantly only able to price in the smallest changes of stance by either side.

Federal Reserve Pauses
The Federal Reserve provided a positive surprise to markets last week. As expected, they announced that they were keeping interest rates on hold at the current meeting; however, they also guided that they would likely pause hikes planned for this year and would be open to altering the pace of quantitative tightening that was previously described as on “auto pilot”. The committee cited concerns over the health of the global economy for the change in stance and given the falling rate of inflation; they were comfortable to put rates on hold, adopting a wait and see attitude. Looser US monetary policy will be a significant boost to global financial markets and has been a key headwind over the last several months, contributing to the market turbulence seen.

Italian Recession
The Italian economy officially entered recession last year, following two quarters of negative growth. As an economy dependent of exporting for much of its growth, the country has suffered from the slowdown of the global economy and trade towards the end of last year. Furthermore, local issues such as changes in regulation in the EU car industry also had an impact. The data is a blow to the incumbent coalition, who were depending on stronger economic growth to support their expansionary fiscal policy. As a result, the forecasted government deficit is likely to be higher than previously and optimistically expected and will place pressure on future budget plans, further impacting future growth prospects.

Market Data

Index Open Close Change % Change
FTSE 100 6809 7020 211 3.10%
S&P 500 2664 2706 42 1.58%
Dax 11281 11180 -101 -0.90%
Cac 40 4925 5019 94 1.91%
Nikkei 225 20773 20788 15 0.07%
UK 10 Year Gilt Yield 1.31 1.25 -0.06 -4.58%