LAST WEEK – KEY TAKEAWAYS

UK: Brexit Party’s U-turn boosts Tory election chances

• The pound strengthened against the US dollar after the Brexit party announced it would not stand candidates in seats held by Conservative MPs;
• There was mixed news for the UK economy- growth slowed but unemployment dropped slightly in the third quarter of the year, while inflation- the rate at which prices rise- fell in October.

• Omnis view: The Brexit party’s U-turn increases the chances of the Conservatives winning a majority in Parliament which would allow Boris Johnson to secure his withdrawal deal. However, the polls were misleading in the last election, so the government cannot afford to take the result for granted. Meanwhile, lower inflation gives the Bank of England greater scope to consider cutting interest rates at its next meeting in December.

US: Trump warns China about higher tariffs

• US shares hit record highs amid optimism about a trade deal with China, despite US President Donald Trump warning he would raise tariffs- taxes on products imported from abroad- on Chinese goods if the two sides could not agree the first phase of a deal;
• In other news, Jay Powell, chairman of the Federal Reserve (the US central bank), said he does not expect to lower interest rates in December as long as the economic outlook does not change.

• Omnis view: The US and China hoped to have signed the initial trade deal by now, but the deadline has been put back due to protracted negotiations and the cancellation of the Asia-Pacific Economic Cooperation (APEC) summit where President Trump planned to meet his Chinese counterpart Xi Jinping. However, US trade officials sounded optimistic later in the week, so a breakthrough remains possible before the end of the year.

Europe: US to defer car tariffs?

• European shares rallied at the start of the week after EU officials said that President Trump would delay trade tariffs on the region’s automobile industry for six months;
• President Trump was due to confirm his decision on Thursday, but on Wednesday he claimed he would make an announcement soon, without setting any deadline;
• Germany narrowly missed going into what is technically considered a recession- two consecutive quarters of negative growth- after the country’s economy grew by 0.1% in the third quarter.1

• Omnis view: Markets welcomed the prospect of a delay to tariffs as they would weigh heavily on the EU economy, especially export-heavy countries like Germany.

Japan: Economic growth slows

• Japanese economic growth slowed in the third quarter, partly due to a fall in trade of goods and services with China;
• On a brighter note, the increase in a sales tax- similar to Value Added Tax (VAT) in the UK- which came into effect in October does not appear to have hampered consumer demand as it remained strong over the same period.

• Omnis view: The Japanese government recently announced it intends to launch of a range of measures to boost the country’s economy, including increased spending to upgrade infrastructure and encourage industrial activity, which should support the country’s stock market.

LOOKING AHEAD - TALKING POINTS

Economic data

• Friday- Japanese inflation rate in October.

UK general election

• Two televised debates take place this week, the first on Tuesday between the Prime Minister and Labour leader Jeremy Corbyn and the second on Friday also featuring Jo Swinson of the Liberal Democrats and Nicola Sturgeon of the Scottish National Party.

1 https://www.destatis.de/EN/Themes/Economy/National-Accounts-Domestic-Product/Tables/domestic-product--q-gdp.html;jsessionid=56FC16B5CDDD4FDE4207C3AE2CFCB548.internet712