Are markets bracing for a ‘President Trump’?; UK Autumn Statement Expectations; Commodities: a glimmer of optimism returns to the sector; Central Bank policy update; October’s PMIs: Health check for the global economy; Q3 company earnings present corporate sector in good health – even banks! 

Are markets bracing for a ‘President Trump’?

 This surge of £-Sterling was the largest in a week since March. It showed markets’ appreciation of Mark Carney agreeing to remain governor of the Bank of England a year longer than originally planned, no hints of another rate cut following the MPC meeting and the High Court ruling that the Brexit plebiscite could not be used to entirely side-line the elected parliament from any involvement in the process ahead.

Central Bank policy update

A removal of central bank policy from the political sphere does not mean that those central banks are wholly unaccountable. Central bankers will continue to face scrutiny regardless of the legal structures around them, but one thing is certain: those calling for a greater intervention into central bank policy should be careful what they wish for.

October’s PMIs: Health check for the global economy

The advantages of a falling pound to manufacturing have been mirrored by increasing inflationary pressures. Rising prices for raw materials in the manufacturing and construction sector suggest that continued growth next year will prove more difficult. In fact, the PPI from the manufacturing survey rose to a 69 month high, the fourth highest level since the survey began in 1992. If this rate continues, the rising prices passed onto consumers may well curb consumer spending as well as corporate hiring.

Q3 company earnings present corporate sector in good health – even banks! 

The US Q3 earnings season is shaping up to be much better than analysts and investors had forecast/expected. Going into the quarter, analysts were anticipating a year-on-year (YoY) decline of aggregate company earnings of -2.2% at the end of September. However, now that more than half of the companies listed on the S&P 500 Index have reported the consensus now expects earnings to grow at +1.6% (+4% excluding energy).

UK Autumn (Budget) Statement expectations

More generally, and to ensure the UK Government manages its (credit) ratings and underpins £-Sterling, we expect the Chancellor to aim for a balanced budget in future parliaments – not this one.  We expect a “steady as she goes” approach with few, if any, giveaways now. More importantly, however, will be the potential for future action he might suggest, such as fiscal loosening that can be pursued at a later stage if the current rate of economic growth begins to falter.

Commodities: a glimmer of optimism returns to the sector

The mini-renaissance in metals and bulk commodities prices could have further room to run as the demand side continues to improve. Incremental demand from China appears to have been a key reason for the jump in prices and the country’s renewed push on infrastructure spending. It would seem that every Renminbi spent on domestic construction is more metals sensitive than one used in other parts of the economy.

Click here to read the full comment