Market Outlook Report – October 2018

Market Overview

October 2018

Surging US economy is bad news for FTSE stocks
At the beginning of the month, the FTSE 100 suffered its worst week since March after strong jobs figures in the United States worsened a sell-off in global equity markets.  Investors are concerned that a wave of positive economic data from the US will prompt the Federal Reserve to raise rates faster than expected and increase borrowing costs, which could cool global economic growth.

Michael Pearce, senior US economist at Capital Economics, said that the employment report was “strong” and would “keep the Fed firmly on track to continue raising rates once a quarter”.  The probability of a rate rise in December rose to 86.7 per cent after the report was published, CME Group said.

Relevance/ Impact 

Falling share prices particularly in emerging markets have scared many investors
The soaring value of the dollar, sparking talk of more interest-rate rises in the US, has meant more woe for emerging markets.  Many of these nations have dollar-denominated debt that is expensive to repay if the cost of borrowing rises in America.  These markets, whose total value has fallen 20 per cent since January, have also been hit by global trade tensions and political problems in countries such as South Africa and Brazil.

Relevance/ Impact 

FCA: Property Funds must Shutter Immediately in future crises
Funds investing in illiquid assets such as property and infrastructure will have to close much faster if another Brexit-like event happens.

In a consultation paper on open-ended funds investing in illiquid assets, the Financial Conduct Authority (FCA) has said fund managers and independent valuers should move much quicker to suspend dealing.  Funds currently close when the manager judges the market to be pricing material discounts.  The proposals will remain open for consultation until the end of January 2019.

Relevance/ Impact 

Fund managers’ gloom deepens
Fund managers are at their most pessimistic on the prospects for the global economy since the financial crash of 2008, a study suggests.

Investors are sitting on cash amid gloom over trade tensions and expectations that the US Federal Reserve will carry on its tightening policy by raising short-term interest rates, according to Bank of America Merrill Lynch’s monthly fund manager survey.  The Federal Reserve has raised interest rates six times since Mr Trump came to office in January last year.

Relevance/ Impact 

Head of the FCA warns on emerging markets
Turmoil in emerging markets poses a serious risk to Britain’s financial system, the chief executive of the City watchdog has warned.

Andrew Bailey, head of the Financial Conduct Authority, said the potential for a meltdown in heavily indebted emerging economies as the post-crisis era of low interest rates draws to a close was top of a list of external threats to the UK.


UK 2018 Budget
In his 2018 Budget, Chancellor of the Exchequer Phillip Hammond announced a series of initiatives for the UK.  Key points included:

  • Growth forecasts of 1.3% in 2018, then 1.6% in 2019 and 1.4% in 2020
  • Forecast for borrowing to be £11.6 billion lower in 2018-19 than forecast at the spring statement
  • Increase in personal allowance to £12,500 (currently £11,850 - a year earlier than planned)
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    Increase basic rate income tax limit to £37,500 & higher rate income tax threshold to £50,000
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    Increase in the Annual Investment Allowance for firms from £200,000 to £1 million for two years
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    Re-shaping of taxation away from the High Street to the digital economy through "Digital Services Tax"

Relevance/ Impact 

The information in this blog or any response to comments should not be regarded as final advice. Please remember that the value of your investment can go down as well as up, and may be worth less than you paid in. Information is based on our understanding at October 2018.