This week's overview covers the UK political scene, Sterling's movement, the latest global, macro economic data, and Trump's election campaign.
STERLING’S COLD GOES VIRAL
A hard Brexit scenario is not likely to benefit the consumer, despite rhetoric from the popular media that Mark Carney’s statements are purely a pursuit of the Project Fear agenda. The economic cycle is well documented, especially since consumption makes up 70% of GDP. Last year’s decline of oil prices falling out of the equation will also ensure any price rises are going to be even more pronounced.
DECEMBER HIKE ON THE CARDS
Janet Yellen, the US Federal Reserve Chair, clouded the prospects for US monetary policy on Friday after suggesting that running the US economy ‘hot’ for a while could help repair the damage to growth caused by the 2008 Financial Crash. With these comments, Yellen indicated that the Fed may keep rates lower for longer in the face of inflation risk. These comments were a strong contrast to the FOMC minutes released on Wednesday 12 October that suggested a rate hike in December was likely.
REPUBLICANS TRUMPED BY TRUMP
Trump’s prospects of winning the US Presidential race took further big hits last week after a number damaging claims of indecency against women were released. The claims have had a direct impact on Trump: a CBS poll based on 13 battleground states showed the proportion of women who favour Clinton over Trump widened from 5 to 15 following the claims. The overall polls are now showing Clinton with a clear lead and the danger now for the Republicans is whether they could lose both the Senate and the House to the Democrats.
CHINA PROSPECTS FALTER
The growing consensus that China’s growth is stabilising took a hit on Thursday 13 October after exports fell 10% from a year earlier, far worse than expected, as imports unexpectedly shrank after picking up in August. The figures were disappointing and highlighted a potential deterioration at home and abroad, with weaker demand for Chinese growth shown across the US, Europe and much of Asia. Asian stocks tumbled to three week lows and US stock futures and Treasury yields fell after the release of the data.
Bond yields increased during the last week to end at their highest level since June. U.S. Treasuries pushed past 1.8%, while Brexit worries ensured another jitter for UK gilts, seeing them climb to 1.10%, a rise of seven basis points. Gilts were already on the racks on the back of a reported comment from an S&P analyst that Sterling may lose its reserve status, which would spur further disposal by investors. Germany's benchmark 10-year bond yield meanwhile has risen 20 basis points this month, moving out of negative territory.
THREE ANNOUNCEMENTS DUE THIS WEEK
19 October – UK unemployment rate // 20 October – ECB Interest Rate Decision // 20 October – US Existing Home Sales
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SOURCES: BLOOMBERG; 7IM