Market Review

04-10-2016

An extraordinary third quarter for UK investors saw the FTSE 100 close out 7% higher, driven by sterling weakness and the subsequent boost to large-cap, overseas-earners. Mid-caps, despite some early jitters following June’s referendum, recovered well as the quarter progressed and the immediate impact on the UK economy was deemed to be negligible.

European machinations dominated an otherwise flat week in markets, with investors taking fright from Deutsche Bank. The company is facing a $14bn fine from the US Department of Justice for the mis-selling of mortgage-backed securities, with rumours of a large hole in the balance sheet due to very significant derivative contract losses. The elephant in the room is, of course, the counter-party risk from those exposures. On Friday rumours circulated that Deutsche was about to agree a $5.4bn settlement with the US authorities, and the stock jumped 15%. While we do not believe that Deutsche is facing its ‘Lehman’s moment’, we recognise that a bail-out is difficult owing to changes in EU rules, but the market needs a stronger indication from Mrs Merkel that DB really is too big to fail. Either way, it does highlight the precarious nature of the European banking system and the need for swift reform.

In the US, the S&P 500 posted a gain of 6.71% over the quarter, with technology the stand-out performer. Defensive names underperformed. Hillary Clinton and Donald Trump met in their first presidential debate on Monday night - early reactions suggest Clinton had the edge. And over the weekend, PM Theresa May declared that she will invoke Article 50 no later than March 2017 (implying it would be a ‘hard’ Brexit). Markets are therefore likely to become jittery as the formal talks draw closer.

At the time of writing, the UK markets are focusing on the $320bn AUM ‘merger of equals’ between Henderson Group and US-based Janus Capital, as well as the Conservative Party conference in Birmingham. Stories suggest Chancellor Philip Hammond is keen to distance himself from his predecessor’s policies, citing a Brexit “roller-coaster” for business confidence. November’s Autumn Statement will be closely watched for the nuts and bolts of Mr Hammond’s "flexible and pragmatic” plan, which, he also stressed would not mean an end to austerity or fiscal discipline.

It looks like November’s statement has all the hallmark’s for another ‘give with one hand, take with another’ speech….

 

 

Economic data and companies reporting for week commencing 3rd October

Monday 3 October
Economics:

US: PMI Manufacturing (Sep), Construction Spending (Aug), ISM Manufacturing / Prices Paid (Sep), Wards Domestic Vehicle Sales (Sep).

Euro Area: SPA: PMI Manufacturing (Sep); ITA: PMI Manufacturing (Sep); FRA: PMI Manufacturing (Sep); GER: PMI Manufacturing (Sep); EMU: PMI Manufacturing (Sep).

UK: PMI Manufacturing (Sep).

Holidays

China, South Korea, Germany

Tuesday 4 October
Economics:

US: IBD/TIPP Economic Optimism (Oct).

Euro Area: EMU: PPI (Aug).

UK: PMI Construction (Sep).

Holidays

China

Wednesday 5 October
Economics:

US: ADP Employment Change (Sep), Trade Balance (Aug), PMI Services / Composite (Sep), ISM Non-Manufacturing Composite (Sep), Factory Orders (Aug), Durables
Goods/Ex Transportation (Aug).

Euro Area: SPA: PMI Services / Composite (Sep); ITA: PMI Services / Composite (Sep);

FRA: PMI Services / Composite (Sep); GER: PMI Services / Composite (Sep); EMU:
PMI Services / Composite (Sep).

UK: PMI Services / Composite (Sep).

Thursday 6 October
Economics:

US: Initial Jobless Claims (01-Oct).

Euro Area: GER: Factory Orders (Aug), PMI Construction (Sep), PMI Retail (Sep); EMU: PMI Retail (Sep); FRA: PMI Retail (Sep); ITA: PMI Retail (Sep).


Friday 7 October
Economics:

US: Change in Nonfarm / Private / Manufacturing Payrolls (Sep), Unemployment Rate (Sep), Average Hourly Earnings (Sep), Wholesale Inventories (Aug), Consumer Credit
(Aug).

Euro Area: GER: Industrial Production (Aug); FRA: Trade Balance (Aug), Industrial / Manufacturing Production (Aug).

UK: Industrial / Manufacturing Production (Aug), Trade Balance (Aug), NIESR GDP Estimate (Sep).

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