Welcome to our August update for the investment markets. We take a quick look at some of the key factors that have been influencing the stock markets and could continue to do so over the coming months. Unfortunately, the latest news paints a gloomy picture for UK and Europe economies.
At the top of news from the UK in July, is Boris Johnson being crowned winner of the Tory leadership race; he became Prime Minister on 23rd July 2019. The UK now looks set to leave the EU by the end of October, with Boris declaring it was ‘do or die’. But uncertainty continues to be a key feature and a no-deal Brexit seems more likely than before.
Both the Bank of England and the Office of Budget Responsibility have warned that a no-deal Brexit risks volatility. The uncertainty of Brexit and how the new Prime Minister will proceed has been linked to a number of gloomy statistics that have been released this month, including:
- UK factories suffered their worst contraction since 2013 according to the PMI by IHS Markit and the Chartered Institute of Procurement and Supply
- Markit PMI also suggested the UK construction sector suffered the worst monthly decline in a decade
- Labour productivity fell for the third quarter in a row, potentially a sign that companies aren’t investing in new equipment
- A trade survey from CBI suggest retail sales fell for the third consecutive month in July, the longest period of decline since 2011
- House price growth slowed down, increasing by only 0.5% in the 12 months to June indicates the Nationwide house price survey
- GDP figures were better than feared between March and May, but the economy still grew only slowly at 0.3%
- NIESR’s report on the UK economy states there’s a one in four chance the UK is already in a technical recession as economic growth stalls
Unsurprisingly amid this, the pound experienced volatility. It hit a 28-month low towards the end of the month against the US Dollar but has since rebound.
It’s not all been gloomy news though. Employment figures indicate that many businesses are still confident in their future prospects. The employment rates increased slightly to 76%, up from 75.6% a year ago, and annual wage growth for regular pay (excluding bonuses) has increased by 1.7% when adjusted for inflation.
Whilst UK business news seems to be dominated by Brexit, European economies are also stalling figures suggest. It’s been linked to a range of factors, including the ongoing global impact of the trade war between the US and China.
Discouraging economic news from Germany signals further headwinds for the global economy. Industrial orders in the country shrank 2.2% month-on-month (8.6% year-on-year), a figure that was higher than expected. German factories are often used as an important indicator of global demand, suggesting a downturn could affect firms over the coming months. The news led to shares in some of Germany’s industrial giants falling as a result.
Other headlines from Germany don’t paint an optimistic picture either. Deutsche bank cut 18,000 staff globally, with shares falling 5%, and chemical giant BASF issued a profit warning, blaming the ongoing US-China trade war for below expected earnings.
In other news, Christine Lagarde has been named as the next head of the European Central Bank, following her resignation at the International Monetary Fund. She’s expected to maintain low-interest rates, with Eurozone government bonds falling to record lows after the announcement.
Continuing to look at Europe as a whole, indicators published by the European Commission finds business confidence has fallen to a six-year low. The organisation has also cut its eurozone growth forecast for 2020 to 1.4%, down from 1.5%, and 2019 growth is still expected to be weak at 1.2%.
The beginning of the month signalled good news relating to the US-China trade war, with talks restarting. However, President Trump has since launched an attack on China through tweets that could mean discussions aren’t going to bring the resolution many businesses are hoping for.
US factory orders barely grew in June, with many blaming the trade war for applying additional pressure. However, compared to global standards, where many countries have suffered a contraction, stagnation seems good.
Other key news from the US, is that the central bank has cut interest rates for the first time since 2008. The 0.25% cut takes the federal funds target range to 2-2.25%, however, the cut has been criticised by Trump for not going far enough.
It shouldn’t come as a surprise that the US-China trade war is affecting Chinese output, which suffered a fall in order in June. Growth in China’s economy has also slowed to 6.2%. Whilst that might seem strong compared to advanced economies, it’s the weakest growth rate seen in the country for 27 years.
Keep an eye on our blog for the latest investment market updates.
If you have any concerns about your investment portfolio in light of recent events, please get in touch.
Please note: The value of your investments can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
This post was written by John Davies