The US midterm elections will be held on the 6 November and the result will impact US foreign and domestic policy for the next two years. Donald Trump’s approval rating is low compared to past Presidents and there are expectations of a ‘Blue Wave’ to push the Democrats to outperform.
The assumption is that the Democrats see this as a referendum on Trump, and that the base is more motivated to vote when compared to the Republicans. The fundraising numbers above definitely support this argument. However as we found in 2016, always expect the unexpected.
The business activity index fell to 52.1 in October, well below the consensus, 53.9. The services PMI’s shortfall in October relative to its 12-month average, 53.9, adds to evidence that the economy is heading for a weak end to the year, due to slowing global growth and heightened risk of a no-deal Brexit. Excluding the dip caused by the Q1 snowstorms, the service PMI fell in October to its lowest level since the referendum. Consumer-facing sectors reported the weakest performance, but business services also suffered as a result of Brexit-related uncertainty.
The Eurozone manufacturing PMI fell to 52.7 in October, marginally below the consensus and initial estimate, 53.9. This data adds further confirmation that manufacturing in the Eurozone area has slowed dramatically from a cyclical high at the start of the year. The French and German data were virtually in line with their initial estimates, at 51.2 and 52.2 respectively, while the data elsewhere was mixed. The Spanish index edged higher to 51.8, from 51.4 in September, but the Italian PMI declined to 49.2, from 50.0 in the month before.
The September trade deficit rose to $54.0bn from $53.3bn, a little above the consensus, $53.6bn. The trade deficit rocketed in the third quarter, with exports excluding oil and aircraft falling at an 8.6% annualized rate, while imports jumped at a 9.7% rate. About 2.5 percentage points of the drop in exports was due to the unwinding of the Q2 surge in soybean exports, triggered by China’s tariffs on US soybean imports, effective July 6.
Following the fall in markets seen in October, the team looked at opportunities to add to the portfolios at cheaper valuations. After looking at a number of options the team decided to add to US Equity in all portfolios, with the exception of the most Cautious profile. This was implemented via an S&P 500 Index Future and added 2% to the Balanced profile.
After analysing the US market the team believed the severity of the recent sell off was over done and that the core fundamentals of the US economy are still strong. S&P 500 companies were set to deliver 26% YoY earnings growth up until Q3 and margins should be further supported by recent tax cuts. These tax cuts should offset the expected wage and interest rate increases.
THREE ANNOUNCEMENTS DUE THIS WEEK
7 Nov – Halifax House Prices // 9 Nov – UK GDP (Q3) // 9 Nov – UK Trade (Sep)
SOURCES: IHS, ONS, REUTERS, 7IM
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