The Weekly Update

Equities were on the back foot again last week with the S&P down -1.6% and the MSCI World down -1.5%. The US dollar also broadly declined with the DXY Index down 0.5%; but this didn’t stop sterling from weakening a further 1.1% versus the dollar as Theresa May’s Cabinet and support fell to pieces as she fought to push forward with the current negotiated deal with the EU. It seems the Cabinet agreed to the terms under duress and with the expectation it would get shot down in Parliament. Just as May announced Cabinet approval to move forward with her Brexit deal four more ministers resigned, doubling those that have left May’s inner circle over Brexit disputes. Suella Braverman, Esther McVey, Dominic Raab and Shailesh Vara resigned after capitulating on the deal, joining Jo Johnson, Guto Bebb, Boris Johnson, David Davis and at least 11 other key figures (Rehman Chisti, Ranil Jayawardena, Nikki da Costa, Anne-Marie Trevelyan, Steve Baker, Ben Bradley, Maria Caulfield, Scott Mann, Robert Courts, Andrea Jenkyns and Chris Green).

Boris Johnson stated he would vote against this “vassal state stuff” that would leave Britain following unreasonable EU rules. While Jeffrey Donaldson of the DUP stated in a radio interview that “this deal has the potential to lead to the break-up of the United Kingdom and that is not something we can support". As it stands, key points of the agreement include the contentious Northern Ireland “backstop” to avoid reintroducing physical checks on the border, a £39bn “divorce bill” settlement by the UK, commitments on post-Brexit citizens' rights, and a 21-month transition period to smooth the chaos on both sides as the UK leaves the EU on the 29th March 2019. As the New Statesman sees it, “There are not enough Labour rebels to cancel out the Tory Brexiteers, pro-EU Tories wanting another referendum and the DUP.”

Oil prices were volatile last week on the back of warnings from Saudi Arabia that it intended to reduce production with Trump warning them not to. Brent crude fell below $65 a barrel earlier on in the week but closed on Friday at $66.76, down another -4.9%, marking its sixth consecutive week of declines from when it peaked on the 3rd October at over $86 a barrel. These moves in oil prices may dampen inflation expectations and pressure. Also, hopes for US-China trade talks were tarnished as Vice-President Mike Pence said America “would not change course until China changes its ways” which reflects the broader US approach to the matter. The Prime Minister of Papua New Guinea, Peter O’Neill, announced that "the entire world is worried" about the ongoing tensions between the eastern and western superpowers.

Alongside the geopolitical tensions, there was a mix of data last week: US CPI came in as expected at 2.5% but there were positive signals from better than expected retail sales (0.8%) and Empire Manufacturing (23.3 from 21.1). US Treasuries rallied on the week with 10-year yields falling 12 basis points to 3.06%, but spreads widened across investment grade and high yield markets. Elsewhere saw Japan’s third-quarter GDP growth fall by -1.2% annualised; although this was expected on the back of a number of recent natural disasters; renminbi loans of 697bn in China for last month were more than 200bn below market expectations of 905bn; Mexico raised interest rates by 25 basis points but comments were even more hawkish than markets were expecting; also Brazil showed signs of falling consumer confidence with retail sales falling 1.3% last month.

Looking to the economic calendar for the week ahead: more focus on US crude inventories on Tuesday and Wednesday; also on Tuesday are RBA minutes and German PPI; US durable goods, home sales and Michigan consumer sentiment on Wednesday; Thursday is Thanksgiving in the US but sees both the eurozone and Japan publish consumer confidence alongside business confidence in France; Friday will see flash PMI data across Europe, US and Japan as well as flash sales from all your favourite retailers on the ever more popular “Black Friday”.

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