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Brexit deadlock continues while China expands stimulus

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Brexit dominated much of the week’s news and the historic defeat of Theresa May’s Brexit deal in parliament angered many business leaders because it means that a “no deal” Brexit remains a possibility, although in Brewin Dolphin’s view – a relatively slim one. Guy Foster, head of research at Brewin Dolphin, says: “Until an agreement is voted as law ahead of 29 March 2019, a no-deal Brexit can’t be discounted. However, the ability of the government to unilaterally withdraw Article 50 up until the 29 March does make this risk considerably less likely, and the chances of an extension of the negotiating period seem to be growing.” However, on Thursday, Theresa May delayed the vote on her Brexit plan B, which was due to take place next Monday. She is reportedly refusing to budge on many of the core characteristics of her failed deal. The debate on a plan B will now take place on January 29.

Elsewhere, worries about a slowdown in the Chinese economy increased this week as imports in China fell 7.6% in the year to December and exports fell by 4.4%. It was the slowdown in China, exacerbated by the trade war with the US, that was one of the largest factors in the poor performance in global stock markets in 2018. Further evidence of that slowdown emerged in the form of Chinese car sales data, which showed that sales dropped for the first time since 1990 as consumers reined in spending. Sales of passenger cars fell by 4.1% in 2018 to 23.8m. Analysts expect this downturn in purchases to continue for at least six months as demand for consumer credit is also waning.

China introduced measures to stimulate its economy on Tuesday, announcing bigger tax cuts and promising to keep liquidity in the banking system even as data revealed the slowest growth of credit in more than 10 years.

The Chinese government said it will cut VAT rates for certain industries, including manufacturers, give tax rebates to others and reduce income tax on small and micro-sized businesses. The initiatives follow a loosening of banking reserve requirements by the People’s Bank of China earlier in January amid a flow of data showing how the economy is slowing, which in turn is troubling companies and markets around the world. Germany is feeling the pain of the Chinese slowdown as China is a major trading partner. Germany’s economic growth slowed to its lowest rate in five years in 2018, according to data issued on Tuesday. German GDP rose by 1.5% in 2018, down from 2.2% the year before.

UK inflation dropped to 2.1% from 2.3% in December, its lowest level in two years, according to the Office for National Statistics (ONS). The fall reduces the likelihood of any interest-rate rise in the coming months. The fall was due largely to a drop in the price of crude oil which pulled petrol prices down to an eight-month low.

UK house-price growth slowed towards the end of last year, according to data from the Land Registry. It showed prices fell by 0.1% in November, following declines of 0.4% and 0.3% in previous months. The annualised rate of growth rose to 2.8% in November from 2.7% in October, below the consensus forecast of 3.0%. Alongside the data, another survey by the Royal Institution of Chartered Surveyors revealed that the outlook for the UK housing market over the next three months is the worst on record. The net balance of surveyors expecting sales to fall was -28, the worst reading since the survey began in 1999. Meanwhile, the net balance of surveyors that said house prices have risen over the last three months fell to -19 in December from -11 in November.

 

Click here to read this week's Market Roundup and Company Focus

Important Notes:

Main source of information: Company Report and Accounts, Bloomberg

No investment is suitable in all cases and if you have any doubts as to an investment's suitability then you should contact us. We or a connected person may have positions in or options on the securities mentioned herein or may buy, sell or offer to make a purchase or sale of such securities from time to time. In addition we reserve the right to act as principal or agent with regard to the sale or purchase of any security mentioned here. For further information, please refer to our conflicts policy.  The opinions expressed in this document are not necessarily the views held throughout Brewin Dolphin Ltd. The information contained here is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.

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