Equity prices continued their recovery over the past week, the FTSE 100 and the S&P 500 gaining over 1%. The FTSE 100 rally despite a better week for sterling, and a momentous week in British Politics. Sterling recovered as the market reduced the odds on a “no-deal” Brexit, or possibly no Brexit. Equities globally rallied as news that China and the US plan to resume trade talks in October. Economic data for the largest economy in the world remains mixed. Commenting on the latest Purchasing Manager Survey from Markit, “US businesses reported one of the toughest months since the 2008 financial crisis in August”. Trade wars appear to be one of the major concerns. The Markit Chief Business Economist goes on to add that the August Purchasing Manager Survey suggests annualised GDP growth of 1%.
It does not take long for any conversation in the UK to move towards the goings-on in Westminster. The Conservative party appeared to elect Boris Johnson with the overwhelming mandate to deliver Brexit using the threat of a “no-deal” as his strongest card. Only to appear to be cutting his legs from him as he tries to play it. British politics seems to be considering dividing itself between a choice of the possibility of backing a “no-deal “or a Corbyn government. The request for parliament to extend the deadline by three months seems pointless and if weekend press reports are to be believed likely to be met with deaf ears in Europe.
The week ahead will be important as the long-awaited meeting of the European Central Bank will take place. A further ten basis point cut in the interest rates, taking European interest rates further into negative territory, is expected. The uncertainty lies in whether the ECB will announce a restarting of the purchase of assets, known as quantitative easing, and if they do what assets they will buy and in what quantity.
Increasing uncertainty in the global economy is met with further action from central banks. As Donald Trump pushes for more action from the Fed and the ECB may announce additional stimulus measures this week. The Financial Times reports China is willing to loosen its bank lending to provide further stimulus.
We continue to live in a time when the central banks of the world are prepared to support the modest global expansion with further monetary stimulus in an to attempt to avoid a global economic recession. China, America and Europe may be engaged in trade wars, but they are all apparently prepared to use monetary policy as a weapon of attack and as a defence mechanism.