Weekly Market Update 2019 02 11

UK Purchasing Managers Index
The closely watched IHS Markit index for service sector activity fell from 51.2 in December to 50.1 in January. The survey was consistent with the manufacturing and construction sector surveys, bringing the composite index to 50.3. With a value of 50 indicating stagnant output, there are dwindling prospects for growth in the UK economy during the first quarter of 2019. The readings were lower than expected, and the sterling fell in response, slipping below the $1.30 mark, down from a recent high of $1.32. The weakening growth outlook was also considered in the latest Bank of England 2019 forecast. The Bank cut its growth expectations from 1.7% to 1.2%, blaming slowing global growth as well as political uncertainty for the sharp revision, and said that there was a 25% of a recession this year.

Eurozone Growth
Following weaker growth from major Eurozone economies, the European Commission (EC) has also slashed its growth forecast for the 19 countries that use the Euro. The EC is now expecting growth of 1.3% this year, sharply lower than the 1.9% previously anticipated. This marks a continuation of the slowdown from 2.4% in 2017 to 1.9% in 2018 and brings the area’s rate of growth closer to the long-term trend. Slower growth is likely to cause significant issues for certain economies within the Euro area, the most prominent of which is Italy. Much of the Italian coalition government’s spending plans assume the economy grows at over 2% this year, a rate which is now looking increasingly optimistic. Slower growth will mean a higher budget deficit and swell the debt to GDP ratio, both of which will scupper plans to keep spending high in the medium term.

Jaguar Land Rover Results
The release of results for Tata Motors, the parent company of Jaguar Land Rover in India led to a 30% fall in its share price, the most significant drop in 26 years. The company announced an accounting write-down of £3.1bn of its investment in Jaguar Land Rover (JLR) following a difficult year for the company. JLR was hit be a range of issues including, falling demand for diesel cars, a sharp drop in Chinese sales and costs associated with Brexit. UK based factories are planning temporary closures later in the year, and JLR is undertaking a cost-cutting programme, primarily impacting middle management in an attempt to rescue profitability. JLR is the latest of a series of car manufacturers who are struggling in a toughening global marketplace which has enjoyed rapidly rising demand for cars over the last several years. However, as cheap credit has been removed from the system, large purchases such as cars have been delayed by consumers.

Market Data

Index Open Close Change % Change
FTSE 100 7020 7071 51 0.73%
S&P 500 2706 2707 1 0.04%
Dax 11180 10906 -274 -2.45%
Cac 40 5019 4961 -58 -1.16%
Nikkei 225 20788 20333 -455 -2.19%
UK 10 Year Gilt Yield 1.25 1.15 -0.1 -8.00%