November 2018 Investment & Economic Update

In our latest monthly investment update for November 2018, we look at how the investment markets, global economy and commodity prices are performing.

Global equities experienced a brutal October, marked by the return of volatility and some sharp daily movements.

The FTSE 100 index of leading UK shares finished the month down 382.1 points or 5.09% at 7,128.10 points.

At the end of the month, stocks managed to stage their first two-day rally. In the US, the Dow Jones Industrial Average rose 241 points, resulting in a 650 point gain over two days, with the S&P 500 index gaining more than 1% in a couple of days.

Despite this end of month surge, the S&P 500 posted its worst monthly performance since 2011, prompted by concerns about higher interest rates and the escalating trade war between the US and China.

With the sharp equity market falls in October happening so quickly, commentators have labelled them as indicative of a market correction rather than the start of a bear market, with the latter usually identified by a slower onset.

Global equities faced negative investor sentiment in October due to renewed concerns about rising interest rates in developed economies, but also slowing corporate earnings growth and worsening US-China trading relations.

Here in the UK, ratings agency Standard & Poor’s is warning that a no-deal Brexit could result in a long period of economic recession.

Paul Watters, head of corporate research at S&P Global Ratings, said “Our base-case scenario is that the U.K. and the EU will agree and ratify a Brexit deal. But we believe the risk of a no-deal has increased sufficiently to become a relevant rating consideration.”

The start of November saw a rally in Pound Sterling after speculation that a deal to secure the UK’s access to EU financial services markets post-Brexit has been reached.

The speculation resulted from comments made by Brexit Secretary Dominic Raab and a report in The Times suggesting a tentative deal on services and the exchange of data has been reached. The deal would guarantee UK companies access to EU markets as long as domestic regulations in the UK remained broadly aligned with EU regulations.

The Bank of England left interest rates on hold at 0.75% at the start of November, with a unanimous 9-0 vote to leave rates unchanged. Financial markets are not now pricing in another interest rate hike until after the UK has left the EU in March.

In its latest Quarterly Inflation Report, the Bank of England said, “The key risk to near-term growth is the extent to which uncertainty about Brexit affects spending as negotiations with the EU continue.”

The latest official economic growth figures for the UK show growth coming to a halt in August, with a slowdown following the World Cup in the summer. According to the Office for National Statistics, GDP growth in August fell to 0%, down from 0.4% in July. Economists were forecasting growth of 0.1%.

In the Autumn Budget towards the end of October, new forecasts from the Office for Budget Responsibility showed UK growth in 2018 at 1.6%. This forecast was upgraded from their prediction in March that growth this year would be 1.3%.

Growth in the eurozone looks equally as modest, with growth in the economic region rising by just 0.2% between July and September. It was down from 0.4% between April and June. These figures disappointed economists who suggested they could be preceding a wider recession.

In Italy, economic growth in the period fell to zero. The French economy grew by 0.4% due to improved consumer spending and business investment.

Growth in the UK housing market has also slowed, falling to its slowest annual rate in five years in October. According to lender Nationwide, annual house price growth fell to 1.6% last month, with prices broadly flat on a month-by-month basis.

The average house price fell to £214,534 in October. Robert Gardner, Nationwide’s chief economist, said, “Looking further ahead, much will depend on how broader economic conditions evolve. If the uncertainty lifts in the months ahead, there is scope for activity to pick-up throughout next year.”

The price of oil fell at the start of November, following three consecutive weeks of decline.

Rising supply of crude oil and concerns over weaker global growth, and volatile equity markets, have prompted the falls. Brent crude futures were $74.25 a barrel during the morning on 1st November.

£1 currently buys $1.2921 or €1.1341. The Forex Gold Index is $1,217.70/oz and the Silver Index is $14.33/oz.

The yield on a benchmark 10-year gilt is currently 1.46%, falling during October as equity investors fled to safety.