Of course, the devil will be in the detail and while we are no longer in the era of George Osborne pulling rabbits out of hats, we can expect some announcements surrounding housing, the NHS and VAT. These announcements will try and appease younger voters and gain support from the millennial generation whilst not taking too much from the Tory faithful. A delicate balancing act.
Almost always, a government is assessed on its performance at the next election, so the Tories should refrain from adopting opposing un-costed, populist, tax and spend pledges. There will always be critics of any policy, so trying to appeal to absolutely every type of voter is nigh on impossible.
Unemployment is at an all-time low, although Philip Hammond did put his foot in it over the weekend by saying that the UK has no unemployed people! Nevertheless, clearly something is very much working in this area and so a renewed focus on this would seem like a sensible idea.
You can understand their concern when they see so much of the younger generation voting in huge numbers for someone who represents the polar opposite of Conservative values. Let us hope that another showpiece policy platform doesn’t end in fiasco as was the case at the party conference and the last budget.
Looking to Europe, in a slightly surprising development over the weekend, Angela Merkel has failed to cobble together a coalition. What happens next is not particularly clear, but if no further headway is possible we expect another snap election although a minority government is also looking possible. Quite what this means for the Brexit talks we are not sure but a weakened Germany suggests to us there will be a greater will to forge strong trading links with the UK once the talks progress.
Taking the prize for the spectacular last week was the Leonardo da Vinci artwork sold week for a record $450 million in Christies in New York. This seems like a tremendous amount of money for a painting, albeit by one of the great masters, which had dubious provenance until recently.
It is true that buyers of artwork, classic cars, wine, vintage clocks and other antiques might buy them for their aesthetic qualities, but many also buy them as an investment in the hope that they appreciate over time. They are often very illiquid and hard to realise until the right auction attended by the right buyers occurs. You then have the auction fees which can be extremely high, some $50m in the aforementioned case.
Alternative investments like these might seem tempting when stock markets are high as their scarcity remains constant over time as the available money to buy them increases. Often even these markets are intertwined with financial markets, as the buyers often have their wealth in the stock market – the higher it goes the more they can bid for that painting.
By the end of this week we will all feel richer or poorer, as Black Friday approaches with all those supposed bargains. The internet of things intertwined with the human desire to accumulate ‘stuff’ which we perceive we need today. The appetite to consume and display our wealth remains in rude health as this debt fuelled consumer boom continues. Whilst this persists, stocks are only going one way.
Equities edge lower as the US Dollar Index drops
Equity markets lost ground last week amid continued uncertainty in the US over tax reforms and Russian involvement in the presidential election. Domestically, a busy week of economic data also gave plenty of food for thought on what appears to be a grim outlook for the UK consumer. The FTSE 100 closed the week just -0.7% lower, whilst the more domestically focussed FTSE 250 fell -1.1%.
The US Dollar depreciated against most major currencies during the week, falling -1.0% against the Euro and -0.9% against the Japanese Yen. The Dollar index, a weighted measure against a basket of currencies, dropped to its lowest close in a month. The greenback currency did however make modest gains against Sterling which also faced a difficult week as investors noted the UK retail sales and inflation data.
UK retail sales were lower than the same comparative period a year ago, the first year-on-year decline since March 2013, according to official data. The month-on-month data posted a less damning assessment but was unable to achieve any notable bounce, growing +0.3% from a lacklustre September. The data was not a surprise and was actually ahead of most forecasts; few headwinds had abated since September and a very strong October 2016 makes for a difficult year-on-year comparator.
A heavy headwind facing the UK consumer is negative real wage growth and last week’s data showed little signs of a trend reversal. The latest consumer Price Index (CPI) data reported a headline inflation rate of 3.0% which was fractionally below the 3.1% forecast that would have led to a required explanatory open letter from Bank of England Mark Carney. Meanwhile Wednesday’s employment report from the Office for National Statistics suggested the Average Earnings Index grew at an annualised rate of just 2.2%. Despite the Bank of England’s rate rise intentions still under the microscope, 10-year gilt yields were little moved, edging two basis points lower over the course of the week to 1.34%.
Commodity prices slipped last week as investors considered weaker data from China and a report from the International Energy Agency that pointed to sharply increased US crude output next year. Brent crude oil closed the week -1.3% lower at $62.72 per barrel. Industrial commodities followed suit as Chinese data disappointed; Copper and Nickel both briefly touching one-month lows.
The Week Ahead
It’s a big week for the Chancellor as he delivers his autumn budget on Wednesday afternoon and we can expect further announcements regarding the chronic housing shortage, VAT and the NHS. It’s also a busy week over at the Bank of England as its MPC members testify on inflation and the economic outlook before Parliament’s Treasury Committee tomorrow. The headline domestic data out this week arrives on Thursday with the second estimate of Q2 GDP. An unchanged quarterly pace of +0.4% is expected with the Services and Manufacturing sectors posting modest growth and Construction in recession. In the US, the latest flash FOMC minutes are due on Thursday with key data released a day earlier in the form of durable goods orders for October. Across the Channel, the Eurozone flash PMI readings for November are released on Thursday with recent strong growth in both Services and Manufacturing expected to have been maintained. Asian data is in short supply.