November 6, 2018
Pegler’s market report – 06.11.18: October Volatility
As published in the Brighton Argus (06.11.18) Business section under the title Pegler’s Market Report:
Despite being one of the most volatile months for years many stock markets around the world managed a decent recovery in the last week of October.
There was positive news as Trump tweeted that he had held a “good conversation” with the Chinese president, Xi Jinping, while he also signalled that both countries were making progress towards settling their trade dispute. However, observers sounded a note of caution that the timing of Trump’s comment could be intended to boost Wall Street before the midterm elections.
The US added 250,000 jobs in October while wages grew at their fastest rate for close to a decade. Some commentators said the figures suggested further tightening in the labour market that could encourage the Fed to raise interest rates and possibly trigger a renewed sell-off in the stock market. Investors have become increasingly concerned in recent months that an increase in borrowing costs could act as a drag on the world economy.
The UK had a more difficult month but there was some recovery against the backdrop of the Budget where Philip Hammond declared that austerity was coming to an end and announced a smattering of tax cuts.
Brexit uncertainties continue to overshadow the UK economy with consumer credit growth slowing to its weakest pace in three years, according to the latest data from the Bank of England (BoE). It said growth in loans and credit card debt rose by 7.7pc on an annualised basis in September, down from a peak of 10.9pc in November 2016. At below a growth rate of 8pc, consumer credit is expanding at below its average pace for the past 20 years – the first time that has happened since 2015. However, total consumer debts still stand at a record £215.2bn. Banks have clamped down on some credit card lending, increasing minimum repayments and cutting limits on borrowing. In addition, with concerns about household finances kicking in and Brexit uncertainties, demand for credit is also said to be slowing. Mortgage lending was also weaker. The number of approvals for purchases down by 1.2pc during the month, while re-mortgages were down by 5.5pc.
The BoE kept its key interest rate unchanged as expected at 0.75pc but adopted a moderately hawkish stance, noting that rates might have to rise faster than expected to keep the rate of inflation under control if Prime Minister Theresa May is able to negotiate a smooth Brexit deal. Governor Mark Carney said that the bank did not expect a no-deal Brexit but felt the country could be in uncharted territory, as it is unclear what effect such a Brexit would have on the balance of demand, supply, and the exchange rate, and it is impossible to predict if rates would need to rise or fall in response.
A disappointing Christmas sales forecast from Apple generally dragged technology stocks lower. A possible slowdown indicates the recent wave of expensive handset launches may have disappointed.
By David Pegler, Brighton Capital Management