At first glance, the impeachment proceedings initiated this week against President Trump present a risk to global markets, but the impact is likely to be subdued and short-lived. First, it is unlikely that the inquiry will lead to Trump’s removal from office, because that would require around 20 members the Republican party to turn against him in Senate they control. In addition, Brewin Dolphin research has shown that during previous impeachments (involving Bill Clinton and Richard Nixon), it is the economic fundamentals that really move markets. On that front, the trade dispute between the US and China continues to dominate investor sentiment.
Most other economic data released this week was disappointing. In a positive surprise, however, UK consumer confidence increased in September. The closely-watched GfK Consumer Confidence Index rose by two points to -12, with all five of the survey's measures, including views on personal finances and the general economy, reflecting a pickup in positivity. It was one of the few positive reports this week.
On Monday, yet another survey confirmed fears that the eurozone economy is virtually flatlining. The IHS Markit Purchasing Managers’ Index for the eurozone fell to 50.4 in September from 51.9 in August – a six-year low. A major factor is Germany. Europe’s largest economy is spiralling towards recession as its manufacturing sector is hit by trade tensions, Brexit worries and falling demand for its cars. The German manufacturing PMI fell to 41.4 in September, from 43.5 August, its worst level since 2009. A survey of UK manufacturing the next day was also disappointing. The Confederation of British Industry’s (CBI’s) Industrial Trends Survey on total orders for the manufacturing sector in September produced a reading of -28%, compared to -13% in August, well below the anticipated reading of -18%. Only 6% of companies said order levels were above normal. Regarding output volumes, 25% of respondents said volumes rose in September and 24% said volumes were down, resulting in a balance of +1%, an improvement on August’s reading of -3%. But the mood was still downbeat, with 38% of respondents predicting a decline in business over the next three months compared to 19% predicting growth. That is the weakest output forecast in 10 years.
There was better news in the US, however, despite the trade war. US factory activity hit a five-month high in September with gains in output and new orders. The IHS Markit’s Purchasing Managers’ Index for the manufacturing sector rose to an initial reading of 51 in September, the best reading since April and higher than an upwardly revised 50.3 in August. The headwinds faced by global manufacturers resulted in total global trade contracting in the first seven months of the year. The value of global exports dropped by 0.87% in July compared to 12 months earlier, according to the Netherlands Bureau for Economic Policy Analysis’s World Trade Monitor. The downturn was less severe than the 1.7% drop in June, but it was the sixth fall in the last eight months. In the year to July, the value of global exports was also lower than the preceding 12 months, when it grew by 3.7%.
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