Market Update: Sterling subdued as Boris submits Irish border proposal

Market Update: Sterling subdued as Boris submits Irish border proposal

7th October 2019

LAST WEEK – KEY TAkeAways

Brexit: Prime Minister proposes alternative Irish border plan

  • Sterling held steady against the US dollar as Prime Minister Boris Johnson submitted his plan to replace the Irish backstop in the Brexit withdrawal deal;
  • The proposal involved Northern Ireland staying in the single market- which means it would be subject to EU regulations covering goods, agriculture and food- but leaving the customs union so it could benefit from any trade deals signed by the UK.
  • Omnis view: The EU rejected the proposal and gave the UK until today to make concessions. Meanwhile, Boris insisted that the UK will leave the EU on 31st October, despite Scottish Supreme Court documents suggesting he will request an extension if the two sides cannot come to an agreement by 19th October.

US: Mixed week for shares

  • US shares fell after the release of economic data indicated that activity in the US industrial sector slowed in September;
  • However, they recovered at the end of the week after the latest non-farm payroll report showed the US economy created 136,000 new jobs in September, while unemployment dropped to its lowest rate in 50 years.
  • Omnis view: The jobs report did not meet expectations, but the markets welcomed the figure because it signalled the US economy is not running too hot or too cold. Some investors believe the Federal Reserve (the US central bank) will leave interest rates unchanged until economic data improves.

Europe: US announces tariffs

  • The US announced it would impose tariffs- taxes on companies importing goods from abroad- of 25% on US$7.5 billion of EU products including cheese, olives, wine, single-malt whiskeys and civil aircraft;
  • Omnis view: The World Trade Organisation (WTO) allowed the US to impose these tariffs in retaliation for government aid from certain EU countries to Boeing’s rival Airbus. This is the largest award in WTO history, and US officials said the tariffs should be in place by mid-October.

UK: Concern about the economy weighs on shares

  • UK shares fell after data revealed the services, manufacturing and construction sectors had slowed in September.
  • Omnis view: Brexit uncertainty will continue to stifle the economy until there is greater clarity about the terms of the UK’s departure from the EU. Recent economic weakness has raised the prospect of an interest rate cut by the Bank of England before the end of the year to 38.1% according to Bloomberg.

LOOKING AHEAD - TALKING POINTS

Economic data

  • Thursday- US inflation rate in September; UK economic growth in August.

Central banks

  • Wednesday – The Federal Reserve publishes minutes from the latest meeting of its interest rate setting committee.

Trade

  • The next round of trade talks between the US and China start on Thursday;
  • Chinese President Xi Jinping and Indian Prime Minister Narendra Modi meet at an unofficial summit in Chennai on Friday.

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This update reflects Omnis’ view at the time of writing and is subject to change.

The document is for informational purposes only and is not investment advice. We recommend you discuss any investment decisions with your Openwork financial adviser. Omnis is unable to provide investment advice. Every effort is made to ensure the accuracy of the information but no assurance or warranties are given.