LAST WEEK – KEY TAKEAWAYS

Brexit: Parliament backs withdrawal deal but rejects Boris’ timetable

• UK shares rallied and sterling strengthened against the US dollar after the House of Commons backed the Prime Minister’s Brexit withdrawal deal;
• However, sterling handed back some of those gains after MPs voted against Boris’ plan to rush the legislation through Parliament so the UK could leave the EU on 31st October;
• Boris then said he would give MPs until 6th November to approve the deal if they agreed to hold a general election on 12th December.

• Omnis view: A general election before Christmas is looking increasingly likely, as the Scottish National Party and Liberal Democrats proposed an alternative date of 9th December which would simply require a parliamentary majority rather than the support of two-thirds of MPs.

Trade: US and China move towards initial deal

• US shares rose as US officials said they were getting close to agreeing the first phase of a trade deal with China ahead of a potential meeting between US President Donald Trump and his Chinese counterpart Xi Jinping at the Asia-Pacific Economic Cooperation (APEC) summit in mid-November.

• Omnis view: The trade truce between the US and China appears to be holding for now, although some of the most contentious issues still need to be addressed.

Europe: Shares climb despite mixed economic data

• European shares hit their highest point this year despite economic data depicting a mixed view of the region’s economy;
• The Purchasing Managers Index- a measure of business activity- rose in the EU and France in October, but it showed activity continued to slow in Germany;
• Meanwhile, the European Central Bank kept interest rates unchanged at its last meeting before Christine Lagarde takes over as President from Mario Draghi.

• Omnis view: A combination of encouraging corporate earnings, easing of trade tensions between the US and China and the fading prospects of a ‘no deal’ Brexit appear to be helping European markets overcome the region’s faltering economy.

Corporate earnings: Tech firms boost US shares

• There was a further boost for US equities as software developer Microsoft, chipmaker Intel, payments processor Paypal and auto manufacturer Tesla beat earnings forecasts in the third quarter;
• However, online retailer Amazon and industrial bellwether Caterpillar fell short of expectations.

• Omnis view: Earnings season is going better than expected- according to research firm FactSet, 40% of US companies have reported as of Friday 25th October, and 80% have beaten estimates. The decline in earnings is now forecast to be 3.7%, rather than 4.8%1.

LOOKING AHEAD - TALKING POINTS

Economic data

• Wednesday- US economic growth in the third quarter of 2019;
• Thursday- EU economic growth in the third quarter of 2019, unemployment rate in September and inflation rate in October;
• Friday- Japanese unemployment rate in September; US non-farm payrolls (job creation) in October

Monetary policy

• Wednesday- Federal Reserve (US central bank) interest rate decision.

Corporate earnings

• US tech firms Apple, Alphabet (parent company of Google) and Facebook and UK bank Lloyds are among the companies reporting annual results this week.

1 https://insight.factset.com/sp-500-earnings-season-update-october-25-2019