Market Commentary 30th September 2019 from Daniel Perkin

This, together with the political fallout that followed the UK Supreme Court’s verdict on the prorogation of Parliament, did little to support Sterling this week. As a result, the share prices of those FTSE 100 constituents that generate their profits in non-Sterling denominated currency rallied. However, this week’s political paralysis and uncertainty over the direction of the economy weighed on the more domestically focused FTSE 250 index as result.

Elsewhere this week, the demise of Thomas Cook on Monday gave propulsion to airline stocks with TUI, for example, climbing by 12.5% as airlines looked to increase their capacity over the coming months to pick up the slack.

During the week, economic data out of Germany indicated the biggest slowdown in manufacturing activity since the financial crisis, in part due to an uncertain outlook for the car industry, Brexit and the ongoing US-China trade war. There were also signs that the economy as a whole contracted during September as confidence fell.

Unexpectedly, Germany’s representative at the European Central Bank (ECB), Sabine Lautenschläger, resigned from her post this week, citing disagreement with the ECB’s current expansive and highly accommodative monetary policy. Loose monetary policy has supported asset prices across the globe in the past decade and Lautenschläger’s comments run contrary to this narrative, which added uncertainty to the markets.

The decision by the Democratic Speaker of the House of Representatives, Nancy Pelosi, to begin impeachment hearings on President Trump has weighed on US equities. Reports too that the White House is considering proposals to curb US portfolio flows into China and restricting Chinese companies trading on US exchanges also soured sentiment.

Shares in US listed Chinese technology companies, Alibaba and Baidu for example, ended the week down by -9.06% and -3.76% respectively amidst the ongoing trade tensions between the world’s two largest economies.

In China, the Shanghai Composite Index fell by -2.47% as data released during the week showed industrial profit declining by -2% on a year-on-year basis during August. Manufacturing demand remains weak in China, which hasn’t been helped by US imposed tariffs and a deterioration in China-US relations under President Xi and President Trump.

Japan’s Nikkei 225 index ended the week down by -1.47%; despite an indicative survey released on Tuesday showing strong growth in the country’s services sector during September.

GBP / EUR – Current 1.1233 Previous 1.1324

Sterling has come under pressure this week against the US Dollar in part due to Michael Saunders’ dovish comments on the likely trajectory of UK interest rates. Against the US Dollar, Sterling was down -1.13% this week.

Against the Euro, Sterling was largely unchanged this week, with the economic outlook on both sides of the English Channel remaining uncertain and giving little impetus for change.