Thanksgiving week is often as good one for US equity investors, and this week was no exception as the bull run US equity prices have been on since the nomination of Donald Trump carried on. The two events that have dominated headlines this year, Brexit and the US election continue to cause divisions. The Democratic party continue to behave as sore losers as do those who support the UK being part of the European Union. This week the man who signed the Maastricht Treaty on behalf of the UK, and help start the ball rolling for closer integration of Europe which eventually led to the euro, has come this week calling for a second referendum. Perhaps if John Major had called a referendum on be Maastricht Treaty at the time we may not be facing this position today. Tony Blair has likewise thrown his hat into the debating ring, as he believes Brexit can be halted.
Theresa May is undoubtedly has a difficult job in the coming year trying to deliver a Brexit of some description. One can only feel we are making that job that much harder to deliver a solution best for the country if we do not provide a united front to the rest of Europe.
The FTSE 100 carries on to jockeying around 6800 as mining shares continue to dominate performance. The Times on Friday highlighted a report from the ECB that UK shares are expensive relative to historic valuation measures. I think it is fair to argue that most developed indexes are expensive relative to history. If valuations are higher than historical norms the actions of central banks are partly to blame as they continue with their momentary stimulus programs. Valuations may be high but this is more of an issue when earnings are falling. If central banks believe the best way to grow the economy is through monetary stimulus, then earnings should follow.
Looking to the week ahead the upcoming referendum in Italy on December the fourth may dominate further the market headlines. This vote is seen in some eyes as another chance to undermine the Eurozone and the euro should Prime minister Renzi lose.
Towards the end of the week we get the last pay rolls report before the Federal Reserve’s policy meeting on December the 14th. Earlier in the week, we get the result of November’s purchasing managers surveys. Only an unexpected and sharp decline in fortunes for the US economy could change the expectations that the Federal Reserve will move to raise rates. On Thursday, the Federal Reserve Chair Janet Yellen discusses the US economic outlook in an annual appearance before the congressional Joint Economic Committee.
Thursday is also the day the ECB sets interest rates. There has been some speculation, just as the Federal Reserve look to tighten monetary policy the ECB may look to add further a stimulus measures.