November Market Commentary

November Market Commentary

The beginning of October brought us the Conservative Party conference and a plethora of promises and fiery speeches. Meanwhile world stock markets were tumbling on fears of a global sell-off and the US/Europe tariff war joining the US/China dispute. By the middle of the month President Trump declared himself ‘optimistic’ about trade talks with China.

Come the end of October it looked like the World Trade Organisation (WTO) would allow China to impose tariffs on $3.6bn (£2.8bn) of US goods, a move that was confirmed in very early November.

Boris Johnson spent the early part of the month trying to persuade politicians at home and abroad to do – or vote for – a deal that would allow Brexit to happen on October 31st. By the end of the month he was preparing for a General Election – while his opposite number in the White House was facing yet more calls for his impeachment.

Let’s look at all the events and figures in more detail…

UK

October was another month where the ‘retail gloom’ section has eclipsed all the others. Christmas is creeping up on us and reception desks in offices up and down the land will shortly be groaning under the weight of Amazon deliveries – as shops in our high streets continue to close.

The month did start with some good news as Hays Travel stepped in to save the 555 Thomas Cook shops threatened with closure following the company’s collapse. But can Hays really save all the shops? There must be many towns where both companies have high street premises.

Elsewhere it was the usual tale of woe as John Lewis went looking for discounts from its landlords, Bonmarché called in the administrators and Pizza Express said it was in talks to refinance a £1bn debt pile.

A report in City AM highlighted the sharp fall in stores’ profit margins as operating costs continued to rise. Profit margins are apparently down from 8.8% in 2009/10 to 4.1% in 17/18, with retailers blaming inflexible leasing arrangements, high business rates and a 10% rise in operating costs over the last five years.

Unsurprisingly, the BBC reported that 85,000 jobs had been lost in retail over the last twelve months, with the number of retail sector jobs falling (on a year-on-year basis) for the fifteenth consecutive quarter.

November was, of course, scheduled to bring us Sajid Javid’s first Budget. One absolute certainty was that the phrase ‘reform of business rates’ would have featured in that speech, as the Chancellor looked to find ways to revive the national high street. With the General Election now scheduled for December 12th, any Budget is likely to be delayed into the New Year.

What of the rest of the economic news in the UK?

There was certainly plenty of bad news in October: the Purchasing Managers’ Index in the service sector showed a ‘heightened risk of recession’. UK car sales in September were disappointing: house price growth is at its lowest for six years and UK productivity recorded its worst fall for five years.

Meanwhile, climate change protesters Extinction Rebellion were targeting both London City Airport and the London Underground.

Against that, figures released by the Office for National Statistics showed that the UK economy had grown by 0.3% in the three months to August. The ONS did not exactly cover itself in glory later in the month when it reported a £1.5bn ‘error in the public finances.’ Fortunately it was an error in the right direction, with the UK budget deficit being £1-£1.5bn less than the ONS had previously reported.

By the end of the month the UK was gearing up for a December General Election – but the bad news was back, as consumer confidence dropped to minus 14 from the minus 12 recorded in September – the lowest level since July 2013.

Perhaps this was reflected in the stock market. The UK’s FTSE 100 index was the only leading market we cover to fall in October. Having started the month at 7,408 it closed down 2% at 7,248. The pound, boosted by hopes of a deal with the European Union, went in exactly the opposite direction, rising by 5% in the month to close October at $1.2944.

Brexit: an end in sight?

For much of October, uncertainty looked set to continue as Boris Johnson tried and failed to get his new Withdrawal Agreement through the Commons. The House even sat on a Saturday – to the dismay of MPs who wanted to watch the Rugby World Cup – but it all proved futile.

Reluctantly, the PM accepted an extension from the European Union, pushing the date of leaving the EU back for another three months. Now the uncertainty would go on until January of next year…

And then, on Tuesday October 29th Parliament finally voted for a General Election as the Liberal Democrats and SNP sided with the Government to by-pass the Fixed Term Parliament Act.

The UK will therefore go to the polls on Thursday December 12th in – whatever anyone claims – will be an election about the future of Brexit. The battle lines are clearly drawn, and the Conservatives started the race with a 16 point lead over Labour. But the experts have been quick to point out that this will be an election where tactical voting will have a major part to play. There will certainly be ‘remain alliances’ in some seats: whether the Conservatives will eventually come to an agreement with the Brexit Party to counter that remains to be seen.

Europe

The big – and worrying – news in Europe was that the German economy appears to be heading for a recession, if it is not already in one.

Figures released at the beginning of October showed that German industrial orders fell more than expected in August: this was due to weaker demand and added to signs that a manufacturing slump is pushing Europe’s largest economy towards a recession.

Thomas Gitzel, economist at VP Bank Group, said that, “The German economy is [already] in the midst of a recession.” With the economy having shrunk by 0.1% in the second quarter, “The German government will come under pressure to give up its strict Budget policy,” added the economist.

There was more bad news for Europe at the beginning of the month when the WTO gave the US the go-ahead to impose tariffs on $7.5bn (£5.8bn) of goods that it imports from the EU. It is the latest chapter in a 15 year battle between the US and the EU over illegal subsidies for rival planemakers Boeing and Airbus and – as Brussels threatened to retaliate – was largely responsible for the global share sell-off at the beginning of the month.

Did October bring us the first moves towards a common European budget? European finance ministers have laid the groundwork for a shared financial mechanism, designed to be used ‘in the event of future economic shock’. Eurozone countries will be required to pay capped contributions into the fund and – presumably – be able to draw on the fund if they duly suffer an ‘economic shock.’ Countries who are struggling economically will be able to reduce their contributions by 50% ‘when necessary’.

The end of October brought the news that Fiat Chrysler are in merger talks with PSA – owners of Peugeot and Vauxhall – to create ‘one of the world’s leading automotive groups, valued at around $50bn (£39bn).

On the stock markets both the German and French indices enjoyed good months. The German DAX index rose 4% to close at 12,867 while the French stock market was up just 1% to close October at 5,730.

US

The US economy added 136,000 jobs in September as hiring continued to slow down: economists had been expecting a figure around 152,000. However, the previous figure of 130,000 reported for August was revised upwards to 168,000 and the two months taken together were enough to push US unemployment down to a rate of 3.5% – the lowest figure for 50 years.

With Bill Clinton having famously said, “It’s the economy, stupid,” you would think – given those numbers – that Donald Trump would be a certainty to win a second term in the White House. Maybe not: November will see the Democrats continue their bid to have the President impeached, with Elizabeth Warren having emerged as the clear favourite to win that party’s nomination for 2020.

Away from politics Microsoft was betting on ‘foldable not bendable’ as it unveiled folding devices with dual touch screens which it hailed as the future of mobile computing. There was more good news for Microsoft later in the month as it beat off competition from Amazon to win a $10bn (£7.7bn) contract from the Pentagon. The contract is for the Joint Enterprise Defence Infrastructure (‘Jedi’, obviously) and is aimed at making the US defence department more ‘technologically agile.’

Two companies, meanwhile, were having rather less successful months. First up was Facebook – where a host of big names were queuing up to disassociate themselves from the Libra cryptocurrency the company hopes to launch. Meanwhile Apple received any amount of flak for withdrawing an app – apparently under pressure from the Chinese government – which allowed protesters in Hong Kong to track the whereabouts of the police. To compound the misery, figures released at the end of the month showed iPhone sales slowing down.

Perhaps Apple will be helped by the Federal Reserve’s decision to cut US interest rates for the third time in four months. As US economic growth for the third quarter slowed to 1.9%, the Fed cut rates to a range of 1.5% to 1.75%.

The Dow Jones index was up in October, but only by 129 points to 27,046 – leaving it unchanged in percentage terms.

Far East

October got off to a bad start for Japanese shoppers as the Government – pushing worries about a sales slowdown to one side – increased its sales tax for the first time in 5 years. The rate rose from 8% to 10%.

But the country soon had even bigger worries, as it braced itself for Typhoon Hagibis, ‘the biggest storm for decades.’ Winds reached 140mph with some areas suffering from floods and landslides.

China now has more ‘unicorns’ – tech start-ups valued at more than $1bn (£770m) – than the United States, but the figures for the third quarter showed the economy growing at its slowest rate since 1992. Admittedly that ‘slow’ rate was 6% – due to the continuing trade war with the US and falling domestic demand – but it was still below the government’s target of 6.1%.

As anyone who has watched a news bulletin will know, the pro-democracy protests continued in Hong Kong and the economic consequences of the unrest were finally felt in October. With shops closed, public transport paralysed and tourists scared away, Hong Kong slid into recession in the third quarter, with the economy shrinking by 3.2% in the three months to September. That was much worse than the 0.5% contraction in the second quarter – and was well beyond economists’ worst fears.

In common with all the major stock markets, those in the Far East fell at the beginning of the month in line with the global sell-off, but they had all – even Hong Kong – recovered by the end of October. Despite the typhoon, Japan led the way, rising 5% to 22,927 and Hong Kong’s Hang Seng Index shrugged off the news about recession to rise 3% to 26,907. The Chinese and South Korean markets were both up by 1%, closing October at 2,929 and 2,083 respectively.

Emerging Markets

We have written previously about the economic problems in Argentina, a country that held an election in October. The winner was the centre-left candidate Alberto Fernandez in a vote inevitably dominated by economic concerns, with the recent – and continuing – crisis leaving a third of Argentina’s population living in poverty.

It was a quiet, but profitable, month for Brazil, Russia and India as they all moved in the right direction in October. The Brazilian stock market rose another 2% to end the month at 107,220. The Russian market was up by 5% to 2,894 and the Indian market broke through the 40,000 barrier, ending October up 4% at 40,129.

And finally…

With all this uncertainty around the world you’d be forgiven for harking back to ‘the good old days’. Shepherds in Spain did this by allowing their flocks of sheep – in their thousands – to follow ancient migration routes from the north of the country to the south for some winter grazing. What’s noteworthy about this annual event is that one of these ancient routes has, since the Middle Ages, been replaced with a large portion of the city centre of Madrid. Dodging sheep is certainly a change from their more popular running from bulls!

While we’re on animal news, rats hit the headlines when psychology professor Kelly Lambert taught them to drive. Strangely enough it was not the fact they were driving that shone the spotlight on the cruising critters. Instead, research found that driving reduced their stress levels… though they were not expected to sit a driving test.

And on that note, we wish you a great month.