Duncan Donald

Mon, Nov 18

Conservative lead extends as Brexit Party stand down their challenge against the current leadership

The Brexit party dominated the news in the UK last week as Nigel Farage’s party elected to stand down and not contest all the Conservative stronghold seats from the 2017 election. This gives Prime Minister Boris Johnson’s party a huge boost as it was thought that the Brexit party could take votes from Conservative candidates, and inadvertently hand victory to Labour. The move boosted not only Johnson’s lead in the polls but the Pound as the market considered the fact that he could achieve the desired majority in parliament without the use of the coalition.



Whilst members of the hard-line Brexit party poured scorn on the decision to simplify the route to the leadership race claiming they hadn’t given moral and financial support to a party for them to concede before battle had begun in earnest, many felt it was the lesser of evils in fear of Jeremy Corbyn, Labour-led government. 


On Thursday the Brexit party further announced they would not stand against the Conservatives in 38 further marginal seats across the UK, further boosting the Conservative party. With Corbyn coming under further pressure, he still remains unwilling to publicly reveal the party stance on Brexit, knowing Johnsons firmly sits on the leave at all costs (hopefully with a deal) side it would seem logical for him to create opposition, but as yet there has been no clear signal from the party, and with the December the 12th deadline looming positive action is certainly required if this is to be a close affair.


As the pound enjoyed a positive week getting back towards the 1.2900 area against the US Dollar, naturally, the FTSE toiled under the pressure of the appreciating pound in what was a buoyant week for global stocks. It wasn’t a straight line move for stocks in general, as despite US President Donald Trump going to great lengths to forewarn the market that good news was coming on the trade negotiations as he spoke at a New York, Economics Society on Tuesday. As markets sat poised for the announcement of an agreement between the US and China, the reveal was somewhat disappointing with the usual positive trade spin with no tangible progress. The lack of factual progress was compounded when Trump highlighted that if a deal wasn’t made then significant tariffs were coming bringing global stocks lower. 



Such is the resilience of the stock markets at the moment, it wasn’t long before they found justification for turning positive and this came predominantly from positivity from members of the US Federal Reserve and in particular Jerome Powell as he testified in the US Congress on Wednesday and Thursday. Powell was upbeat on the economy sighting that he believes that interest rates are at the appropriate levels to match the leading economic strength indicators. Powell’s notes of a strong US economy were coupled with continued assurances of US Economic Advisor Larry Kudlow that a US/Sino deal would be reached very soon facilitating another Friday surge and fresh highs for the S&P 500, Nasdaq and Dow Jones indexes. 


For now, the escalation of the US President Trump's impeachment investigation does not appear to have had an impact on the markets, but as the investigation turns more public, we could start to hear the facts that could begin to dent his populous.  With a very light week of data this week the main events will be the minutes of the last Fed Reserve Meeting which we receive on Wednesday night. On Tuesday we get the minutes of the Reserve Bank of Australia’s interest rate meeting which will be interesting, especially in light of some very poor employment data out of Australia last week. On Wednesday we also get an interest rate decision from the People's Bank of China.


The Week Ahead:


Monday – EU financial stability report is first up ahead of the Bundesbank Monthly report at 10 am. In the US session, we get NAHB housing index ahead of the Australian PPI data.


Tuesday – As the Asian session begins, we get the minutes from the RBA. At the start of the European session, it’s the German wholesale price index and Eurozone Current account and construction data. In the US session, we get Housing starts and Redbook and then latterly Building Permits.


Wednesday- German PPI comes first in the European session. In the afternoon the main data is Canadian inflation ahead of the Federal Reserve minutes at 7 pm. 


Thursday - IN the morning we get Public Sector Net Borrowing data from the UK. Midday its the ECB Monetary policy meeting accounts (minutes). Some US manufacturing data, as well as Canadian employment data and the Bank of Canada’s Poloz, speaks at 1.40 pm. 


Friday - First up we hear from new ECB head Christine Lagarde. The morning has manufacturing and Services PMI’s from France, Germany and collective Europe. In the afternoon we get Canadian Retail sales and US manufacturing and services PMI.