It has been a week full of developments that pushed share markets higher and may yet help dissipate some of the headwinds that have been weighing on the global economy. The EU granted the UK a Brexit deadline extension which takes the immediate prospect of a no-deal departure off the table. This allowed the Labour party to agree to Boris Johnson’s call for an early election, set for December 12. While the Tories are favourites to win a majority, and would be preferred by most big business, a hung parliament remains a distinct possibility. However, there is good chance that an election will provide greater clarity about where Brexit is headed and that would likely be positive for both equity markets and the pound.
Progress was reportedly made in negotiations between the US and China, with the two countries close to signing a partial trade agreement that would see both countries agreeing to buy more products from the other. President Trump said he hoped to sign this so-called “Phase 1” trade agreement next month. This was a fillip to equity markets. On Thursday, however, reports emerged suggesting China was sceptical about reaching an agreement on a more comprehensive deal, with sources in China suggesting Donald Trump would need to roll back some of the tariffs.
The US Federal Reserve also cut interest rates this week - the third cut in successive months. It cited the move as “insurance” against the impact on the economy of the trade war and a domestic slowdown. It then signalled this would most likely be the end of this mini-cycle of rate reductions. On Wednesday, the US also released its third-quarter GDP data. It showed the economy expanding at an annualised rate of 1.9%, a slowdown from the 2% annualised growth in the second quarter. Consumer spending grew at an annualised growth rate of 2.9%, a marked slowdown from 4.6% in the second quarter. Business investment, contracted by 3%, its worst reading in almost four years, and an ominous sign for future growth.
There was some welcome good news for the eurozone economy as GDP data showed the region’s economic growth accelerating, albeit at a very modest pace. The bloc’s economy expanded by 0.2% in the period, beating expectations of 0.1% growth, according to Eurostat.
Back in the UK, the latest Nationwide house price index showed that prices rose by 0.4% during the past year. Robert Gardner, Nationwide's chief economist, said: "Average prices rose by around £800 over the last 12 months, a significant slowing compared with recent years – for example, in the same period to October 2016, prices increased by £9,100.”
Gardner blamed weaker global growth impacting the domestic economy and uncertainties around Brexit. The impact of these uncertainties are weighing on consumer sentiment in a variety of areas, not just the housing market. The latest GfK Consumer Confidence survey, Britain’s longest-running measure of sentiment, dropped to its lowest level since 2013 this week. The index produced an overall reading of -14 in October, deteriorating from the -12 reading in September. The survey showed a deterioration in all of the five subsections it measures to calculate confidence, and the worst reading came in how people view the outlook for their personal finances over the next 12 months.
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