Financial Bulletin – November 2019


October was yet another significant month for UK politics, with ramifications for financial markets.

The Prime Minister first managed to negotiate a new ‘Brexit’ deal before giving priority to an early General Election, which Parliament eventually agreed to hold in December.

Away from the political impasse in the UK, financial markets have continued to focus on Central Bank policies.

However, the heads of several Central Banks have been more vocal than ever in suggesting that governments should be taking on more responsibility when it comes to stimulating the world economy.

Nevertheless the US Federal Reserve decided to cut interest rates once more at its October meeting.  

Despite economic news continuing to paint a subdued picture, most stock markets were able to make modest gains during October and over the last 6 months.

Over the last 6 months the FTSE 100 lost around -1.85%, whilst the Euro Stoxx 50 and S&P 500 gained around 2.55% and 2.89%, respectively (all in price terms). 

The broad Emerging Markets index fared less well than many of its developed market counterparts and returned -1.79% (in US$ price terms).

The Japanese Nikkei 225 gained approximately 3.00% (in price terms).

Government bond yields have been driven lower over the last 6 months, with UK Gilts particularly volatile on the back of political uncertainty.

US Economic News

The US Federal Reserve cut the main interest rate during October, the third rate cut this year in response to weakening economic growth.

However, the Central Bank’s Chairman, Jerome Powell, hinted strongly during a press conference that interest rates are unlikely to be cut again for the foreseeable future.

Interestingly, after many months of worrying that the Federal Reserve is not cutting interest rates fast enough, financial markets now seem to agree that a pause is appropriate.

The economic news during the month pointed to a slight improvement compared to previous months as the manufacturing sector expanded at the strongest rate for six months.

At the same time the continued strength of the labour market surprised analysts, as the number of new jobs created during October beat forecasts.

As has been the case for some time, however, businesses in the US, particularly manufacturers, are worried about the trade dispute with China.

In this regard there was slightly more positivity in the air, as Commerce Secretary Wilbur Ross commented that a ‘phase one’ trade deal might be signed in early November.

UK Economic News

It was yet another busy month for the UK politically as Boris Johnson first managed to negotiate a withdrawal agreement with the EU, before then abandoning it in favour of a General Election.  

After at first rejecting the idea of an election, the opposition Parties later agreed to one being held on the 12th December.

In response to the House of Commons’ desire to hold an election the EU agreed to extend the ‘Brexit’ deadline until the end of January.

The poll significantly increases uncertainty for investors as the Labour Party manifesto is likely to promote sweeping economic changes.

Whilst political events unfolded in Westminster, the UK economy continued to show signs of weakness.  

Although the latest surveys from the manufacturing and construction sectors suggested a slight improvement from September, it is still expected that they contracted.

Employment in both sectors is likely to reduce over the coming months.

The unemployment rate for the economy as a whole remained at an historically low level, but rose slightly to 3.9%.

There is also tentative evidence that the weakness in the construction and manufacturing sectors is feeding through to the consumer.

Retail sales rose by 3.1% in the year to September, which was worse than analysts had been hoping for after a weak August.

The Bank of England Monetary Policy Committee did not have a meeting this month but Mark Carney, the Bank’s Governor, signalled that fiscal policy should be utilised in order to help the economy.     

Eurozone Economic News

The Eurozone economy remained weak during October as Christine Lagarde prepared to take over as President of the European Central Bank.

Although the manufacturing sector across the Eurozone showed some modest signs of improvement, it is still contracting at a strong rate. 

The German manufacturing sector, which exports a significant amount to China, continued to contract sharply, and employment within the sector fell at the fastest pace in almost a decade.

Preliminary estimates of inflation across the region suggest the rate has now fallen to just 0.7%, which is the lowest rate since 2016.

The headline rate of inflation highlights the danger the Euro Area faces of falling into stagnation.

The problem facing the ECB is that it has already undertaken large scale stimulus measures and will find it difficult to go much further.

Christine Lagarde has publicly called for more stimulus measures from governments (fiscal policy) several times already.  

Wider Economic News

The official rate of growth for the Chinese economy came in at 6% for the third quarter of the year; the lowest rate since 1992.

On the face of it the numbers suggest a significant slowdown in the world’s second largest economy.

However, the fact remains that it is inevitable that the economy will slow down compared to the breakneck speed at which it grew during the early 2000s.

Elsewhere, the Japanese manufacturing sector deteriorated even further and production contracted for the tenth month in a row.

Although some of the weakness was likely as a result of the typhoon during October, businesses do not appear particularly confident of a short-term rebound.

Financial Markets and Corporate News

Whilst the world economy remained subdued, many of the world’s stock indices made modest gains over the last 6 months.

Over 6 months the FTSE 100 lost around -1.85%, whilst the Euro Stoxx 50 and S&P 500 gained around 2.55% and 2.89%, respectively (all in price terms).  

The broad Emerging Markets index fared less well than some of its developed markets counterparts and returned -1.79% (in US$ price terms).

The Japanese Nikkei 225 gained approximately 3.00% (in price terms).

Bond markets have generally been driven higher by lower interest rates over the last 6 months.

UK Gilts have risen strongly but have also been volatile on the back of political uncertainty.

The Investment Association (IA) UK Gilts sector returned 7.24%, the IA Corporate Bond sector returned 4.88%, whilst the Sterling High Yield sector returned 2.25%.

Summary of Key News:

  • The UK is to have a General Election in December.
  • The UK economy has weakened slightly.
  • The US Federal Reserve cut interest rates once more.
  • The Eurozone remains subdued, particularly Germany.
  • The Chinese economy grew at the slowest rate since 1992.

Financial Markets:

  • Over the last 6 months the FTSE 100 lost around -1.85%, the Euro Stoxx 50 gained around 2.55%, whilst the S&P 500 gained around 2.89% (all price terms).
  • The Nikkei 225 gained approximately 3.00% (in price terms).        
  • The broad emerging market index lost -1.79% (in US$ price terms).
  • The IA UK Gilts Sector returned 7.24%, compared to 4.88% for the IA Corporate Bond Sector, and 2.25% for the IA Sterling High Yield Sector.         


It has been known for some time that Central Banks have little fire power left in order to stimulate their economies (save for some very unconventional methods).

However, some Central Banks are now openly calling for help from fiscal policy.

This dynamic is something that could have large implications for investors; the last 10 years have been characterised by bonds rising ever higher on the back of Central Bank stimulus.   

If governments begin to open their purse strings it could well add to inflationary pressure, and will make bonds, particularly government bonds, less attractive.

For now, equity investors appear to be content that a significant global slowdown can be avoided and that companies can continue to grow earnings.

In the UK, investors will have to contend with more political uncertainty as the year draws to a close.

Jeremy Corbyn’s Labour Party is likely to introduce a completely different economic model to the UK. Therefore, if the polls begin to suggest a close contest there is likely to be yet more volatility.