Except for a mid-afternoon blip it has been one downward trajectory for the FTSE today.
Surprisingly London traders have been more cautious than their US peers who are awaiting the results of the midterm elections due later tonight. The vote will decide on whether the two US legislative houses remain Republican, like the President, or turn Democrat. The first results for the key swing states are expected around 10pm Eastern time and will colour the trading day Wednesday. For all of President Trump’s threats to his foreign trading partners his domestic economic decisions have injected the US stock markets with some vigour, particularly the massive tax cutting programme. A change in the texture of Congress would hamper his capacity to push through decisions that require legislative approval, causing concerns for businesses. However, some dark clouds are already gathering on the economic horizon, as seen by the massive selloff in stocks and bonds in October.
FOMC meets Wednesday
The Fed starts its next rate setting session on Wednesday amidst a strong increase in employment levels and a 3.1% rise in wages. Even so the US central bank is likely to postpone any rate increases until December and then continue the tightening process into next year. With the Fed’s Powell not expected to hold a press conference at the end of the meeting the reading of the Fed’s tea leaves will have to be postponed until the release of the minutes at the end of the month. The dollar was trading in a tight range for most of the day losing some ground to sterling but holding firm against the Canadian dollar and the yen. In contrast, the pound gained momentum as the news flow of confirmed and unconfirmed reports started indicating that Britain may be close to a Brexit deal. There has been no solid news except Brexit Secretary Dominic Raab’s thumbs up to a BBC reporter – showing that the market is now wishing itself higher, no matter what the reality of the situation is.
UK high street sales and GDP data in focus
Investors’ already frazzled nerves over the state of UK high street sales were not helped by data from supermarket Morrisons today. Though the company reported an increase in sales, most of it came from the wholesale side while supermarket sales increased by just over 1%. The stock was heavily sold off losing over 5% on the day because Morrison’s numbers came in after months of negative news flow about high street retailers including shop closures and bankruptcies. While the finger of blame for all of the high street woes is frequently pointed at Brexit – if not the weather – there will be some clarity on how badly the UK economy has been affected in the third quarter by the divorce negotiations with the EU this Friday when the latest GDP numbers come out. A consensus is forming around 1.5% year-on-year GDP growth, which is marginally higher than the reading of 1.2% in the previous quarter. That might be slightly optimistic given the recent slowdown in manufacturing and services sector.
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.