Weekly Market Update 2019 02 20

UK GDP disappoints

UK economic growth slowed in Q4 2018 to 0.2%, taking the full year growth to 1.4%. The last time full year economic growth was this low was in 2012 and last weaker in 2009. The figure was dragged lower by a particularly poor December, which saw the economy contract by 0.4% primarily as a result of falling business investment and construction activity. Furthermore, overall growth was impacted by a widening of the total trade deficit in the three months to December, as a result of a rise in goods imports. The persistently wide trade deficit is a disappointment given the weakness of Sterling; however, a slowing global economy has lessened the demand for UK goods and services, and resilient UK consumption has not dampened the need for imports.

UK Inflation

The headline annual rate of CPI inflation in the UK fell to 1.8% in January, down from 2.1% in December. The slowdown in inflation was broad-based, although the most significant contributors were falling prices for clothing as well as gas and electricity. Utility prices were impacted by the recent energy price cap introduced by the government and is likely to be a one-off effect. The influence of lower oil prices is also still feeding through and will continue to provide downward pressure on inflation over the coming months. Lower inflation is welcome news for consumers, as combined with accelerating wage growth and high employment rates UK workers should find themselves with more rapidly rising discretionary incomes. While the current political uncertainty may mean that this is saved in the short term, it should generate increased spending in the future.

US National Emergency

After failing to gain enough support for his border wall, President Trump has declared a national emergency to secure funding. The emergency was specified as a need to stop illegal immigrants from spreading crime and drugs. The desire by the president to fulfil a personal campaign promise, although overlooking the part where the Mexicans were going to pay for it, is likely to lead to further political turbulence in the US. Nevertheless, the damaging government shutdown has ended for the time being following a small concession by the Democrats. Given that financial markets have become increasingly used to political turmoil, it is unlikely that this latest round will feed through significantly into asset prices.

Market Data

Index Open Close Change % Change
FTSE 100 7071 7236 165 2.33%
S&P 500 2707 2775 68 2.51%
Dax 10906 11299 393 3.60%
Cac 40 4961 5153 192 3.87%
Nikkei 225 20333 20900 567 2.79%
UK 10 Year Gilt Yield 1.15 1.16 0.01 0.87%