Week ending 4th October 2019.

Global equity markets declined at the start of the week after US ISM manufacturing PMI came in at 47.8 in September.  Not only was this the lowest reading since 2009, it was the second consecutive reading below 50 (the line separating expansion and contraction).

However, it is worth noting that US PMI data has dropped below 50 (i.e. contraction levels) before and the US economy hasn’t fallen into recession.  This could well be the case again given the strength of the US consumer (consumer spending is the most important driver of US economic growth as it accounts for just over two-thirds of US GDP).

Adding to the gloom was news that the World Trade Organisation (WTO) gave the US permission to impose tariffs on $7.5bn worth of EU imports, in retaliation for illegal government aid to Airbus, which could further hit the Eurozone economy.

However, today’s (4 October 2019) US employment data quashed recession fears as it came in generally in line with market expectations, allowing equities to recoup much of the sell-off at the start of the week.

Additionally, revisions to the prior two months of non-farm payroll data were positive (for example, August’s payrolls were revised to 168,000 from 130,000), and while wage growth was flat month-on-month, the unemployment rate fell to just 3.5%.

Furthermore, this week’s mostly underwhelming economic data pushes us closer to the inflection point where global central banks provide further monetary stimulus.  And as we have previously stated, we believe that the US Fed will cut US interest rates again when policymakers meet at the end of this month (29-30 October 2019).

Unfortunately, the FTSE-100 was one of this week’s worst performing markets thanks to its heavy exposure to oil and mining stocks (which underperformed due to worries that the global economy is slowing down).  For example, over 15% of the FTSE-100 is accounted for by BP (down 4.70% on the week) and Shell (-4.17%) alone.  While Glencore and Rio Tinto ended the week 8.24% and 5.04% lower respectively.

This coming week, a Chinese delegation will visit Washington for trade talks aimed at hammering out a deal (and if China and the US can end their trade conflict, the global economy and global equities could quickly recover).

Additionally we have minutes from the last Fed meeting and US CPI.

Investment Management Team

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