By knowing more about a problem and its solution, you can fix it. But you can also con people. Chief investment officer Julian Chillingworth draws parallels between politicians and economists and builders and mechanics.
Index
1 week
3 months
6 months
1 year
FTSE All-Share
-0.2%
-1.4%
1.5%
7.5%
FTSE 100
-0.3%
-2.3%
1.3%
7.5%
FTSE 250
0.3%
3.5%
3.5%
8.3%
FTSE SmallCap
0.5%
-0.2%
-1.1%
4.0%
S&P 500
0.6%
-2.2%
6.7%
13.8%
Euro Stoxx
0.3%
-1.8%
4.6%
12.3%
Topix
0.6%
0.8%
7.4%
9.5%
Shanghai SE
-0.3%
-6.4%
-7.4%
12.3%
FTSE Emerging
0.4%
-3.7%
0.7%
12.5%
Source: FE Analytics, data sterling total return to 1 November
Forward guidance The US Federal Reserve (Fed) cut interest rates to 1.50-1.75% last week, as expected. The third 0.25% cut of the year came just after news of better-than-expected American GDP growth in the third quarter. Other economic data was also relatively upbeat, with many more jobs created than expected over the past three months, and the ISM Manufacturing survey improving – particularly when you look at new orders. The Fed has said it will wait on “incoming information” before making any further interest rate moves. To be frank, that pause is probably more in the hands of the US stock market than the central bank. Every time the market wobbles, showing investor nervousness, the Fed has stepped up to cut rates. There’s a sort of feedback loop going on here and at base it’s probably down to the Fed worrying that business investment remains depressed. The American economy is increasingly being driven by household and government spending alone. And the reason for a lack of business investment? Perhaps because company managers are concerned that greater investment and lessened profit margins would lead investors to make punchy re-evaluations of a business’s price relative to its earnings. Instead, businesses sit on their hands, the Fed cuts rates and the stock market hits another record high. Obviously there’s another cloud hanging over company managers and stockholders: the US-China trade war. The tit-for-tat exchange of tariffs, boycotts and business blacklisting has been chugging along for more than a year now. The US has slapped punitive tariffs on $550 billion of Chinese goods; China has retaliated with tariffs on $185bn of American imports. Worse than that is the feeling that the discussions between the two aren’t really running on good faith. US President Donald Trump flicks out multi-billion-dollar tweets seemingly at random. Rescinding them one day, then ratchetting them up the next. It’s dizzying and perhaps no surprise that it encourages inaction among businesses and investors. China has problems of its own at home, too. Hong Kong has officially slumped into recession, due in no small part to months of street violence and protests. Chinese troops have been stationed just across the border in Shenzhen for months now. Just last week, the 400-strong Communist Party Central Committee met in Beijing for an annual discussion of the nation’s political path. High on the agenda: the importance of centralised power … There’s an interesting dichotomy in China right now. National pride appears strong, with recent boycotts declared on businesses from America, Japan and South Korea for perceived slights on China. However, an FT Confidential Research survey of 1,000 Chinese found that a fifth would leave China permanently if they had the means to do so. That rises to 36% of those with higher-incomes (RMB300,000+, equal to £33,000). This survey could well be flawed; and who knows how Britons would respond to such a question! But if true, it means that people become disillusioned with China’s system when they get wealthier. That makes sense: you will live with an onerous system that helped you escape poverty. But when you have money, your patience may run out. The next decade could be a difficult one for China’s leaders, and Hong Kong could well be a dry run for they intend to deal with such unrest. Bonds UK 10-Year yield @ 0.66% US 10-Year yield @ 1.71% Germany 10-Year yield @ -0.38% Italy 10-Year yield @ 1.10% Spain 10-Year yield @ 0.29% Economic data and companies reporting for week commencing 4 November Monday 4 November UK: Construction PMI US: Durable Goods, Factory Orders, EU: Manufacturing PMI, Sentix Investor Confidence Interim results: Norcros Trading update: Circle Property Tuesday 5 November UK: BRC Sales (Like-for-Like), New Car Registrations, Services PMI, Official Reserves, US: MBA Mortgage Foreclosures and Delinquencies, Trade Balance, Service PMI, ISM Non-Manufacturing PMI EU: PPI Inflation Final results: AB Foods, Up Global Interim results: Castleton Quarterly results: PJSC Polyus Trading update: Allied Irish Banks Group, Intu Properties, Morrisons (WM) Wednesday 6 November US: Mortgage Applications, Nonfarm Productivity, Unit Labor Costs, EU: Services PMI, Retail Sales, Final results: Connect Group Trading update: Croda International, Tyman Thursday 7 November UK: Bank of England Rate Decision and Inflation Report, Office for Budget Responsibility Forecasts US: Consumer Credit EU: EU Commission Economic Forecasts, ECB Economic Bulletin Interim results: 3i Infrastructure, Great Eastern, Halfords, Renewl, Sainsbury (J) Quarterly results: Bank of Georgia Group Trading update: Purplebricks Friday 8 November UK: Moody’s Rating of Sovereign Debt US: University of Michigan Sentiment Survey