After an eventful week for the Conservative party and Theresa May put pressure on sterling and investors running for safety in the gilt market. Despite the weakness in sterling the FTSE 100 failed to benefit, finishing lower on the week by just over 1%. UK Domestic stocks were hit hard on the week and this was reflected in the performance of the FTSE 250, falling over 2.5% in the past five days. US equities likewise finished the week lower, however, managed something of a recovery in the second half. The Vix index reflecting the move in the index rising sharply in the middle of the week and finished close to where it started.
Bonds were generally in demand as investors bought US treasuries. The yield on the 10-year US treasury falling back close to 3%. The two-year yield back to 2.8% from almost 3% a few weeks ago. Where it is unlikely the Fed will decide not to go through with the fourth interest rate rise this year in December, Barron’s this weekend does question whether the Fed will reconsider. Another possible sign of risk aversion as the Japanese yen outperformed the US dollar.
One wonders if the tide may be Turning for Theresa, as a couple of high-profile ministers remain within the cabinet, and Jacob Rees Mogg so far appears to be failing to find the 48 letters to support a vote of no confidence.
The past weeks US economic data paints a mixed picture, despite the latest consumer spending showing something of a rebound there are signs of a slowdown. The Empire State Manufacturing index strengthened as did New orders, however, the divergence between current and new orders widened as manufacturers remain wary of growth next year. The Philadelphia Federal Manufacturing index declined last month. A combination of the Philly Fed and New York Manufacturing data reports some moderation in factory activity at a national level. Despite a small bounce at the end of the week, the oil price remains weak.
Looking to the week ahead Brexit will continue to influence sterling, and if there is a sense that Theresa is winning the day one could see a bounce in the currency. This week is Thanksgiving, markets in the US tend to rally during this time, as families take this time to celebrate. US markets are closed on Thursday and open only briefly on Friday. Despite the foreshortened week in the US that does not prevent a couple of important pieces of economic data released in the form of flash PMI’s and Durable goods orders. The ECB remains under pressure as they too look to tighten monetary policy whilst the economy looks weaker, the release of the last ECB meeting minutes will be of interest.