This week it covers Brexit, the US election, UK and US monetary policies.
WHAT BREXIT MEANS
From high court judgements, to another Tory resignation, to views voiced by Jeremy Corbyn on what Labour wants a Brexit deal to include, Theresa May is being increasingly challenged over her government’s view of Brexit and how we get there. If negotiations transpire to be aligned to the Tory view (only) of Brexit, the Labour Leave voters may reject any ultimate decision, particularly given the lack of UK parliamentary input to negotiations to date.
US ELECTION & EMAILS
The FBI announced that it had decided to stick to its original finding that Hillary Clinton didn’t commit a crime in her handling of emails as Secretary of State. In his second letter to Congress in a week on the subject, FBI Director, James Comey, confirmed that the additional reviews had found nothing new. investigations have however upset the Presidential race and perhaps even the Senate ballot. While it’s unclear what impact this latest announcement may have on Clinton’s campaign given polls close on Tuesday, the market took it as good news. The Mexico Peso gained alongside Asian equities, and European and US Futures. Safe havens such as gold and the Swiss Franc retreated.
UK INTEREST RATE POLICY CHANGE
The Bank of England’s Monetary Policy Committee (MPC) looks to have abandoned its previous stance on supporting the economy instead emphasising inflation risk at its meeting on Thursday. The MPC members voted unanimously to keep the bank base rate at 0.25%, and issued no further guidance on any further cuts. The MPC meanwhile revised up its inflation forecast in 2017 to 2.4%, up from the 1.9% set just three months ago, and flagged that it expects inflation to hit 2.8% in 2018.
US RATE RISE INCREASINGLY LIKLEY
US payroll and wage data released on Friday reinforced the case for a December Federal Reserve (Fed) rate hike. The trend in payroll growth is now running at about 170,000 per month and the year-on-year rate of wage growth rose to 2.8%, the highest since June 2009. This data reflects the tightness in the labour market and will be a key driver in the decision making of the Fed.
With a Trump triumph trending around a 30% chance, the team took risk off the table and booked their profits on their overweight positions in Asian Equities. Trump’s rhetoric on China, in particular, could mean that a trade war in the event of his victory would quickly come to the fore, and especially if the seats up for re-election in the Senate and House of Representatives remain under Republican control.
This leaves the portfolios sitting on large amounts of cash, which will allow for decisions to be made this week and enable us we look to re-include risk through other investments.
The inflation protection notes continued to outperform in line with inflation expectations.
THREE ANNOUNCEMENTS DUE THIS WEEK
9 November – UK Balance of Trade // 9 November – EU Balance of Trade // 9 November - US Election Results
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SOURCES: BLOOMBERG; 7IM