Market Update

The long-awaited day of Brexit may finally be upon us, but its fate hangs in the balance as MPs prepare to vote on the deal during tomorrow's (Saturday, October 19, 2019) Parliamentary session.
The parliamentary arithmetic is incredibly tight, making approval challenging, especially after the DUP's rejection of the deal. If MPs do not approve the deal, the Benn Act will force Boris Johnson to seek an extension, potentially leading to a confidence vote and then a General Election.
Throughout the week, the pound strengthened due to news of the Brexit deal. However, the FTSE-100 lagged behind other major markets due to its significant exposure to oil and mining stocks, which suffered from weakening commodity prices amidst a slowing global economy. A stronger pound poses challenges for exporters and companies with substantial overseas earnings, as about two-thirds of the FTSE-100’s total revenue comes from abroad.
Notably, BoE Deputy Governor Dave Ramsden indicated on Friday, October 18, 2019, that if Boris Johnson secures Parliamentary support for his Brexit deal, UK interest rates could rise. However, given the prevailing economic uncertainty and increasing global downside risks, we believe the BoE will face pressure to reduce, rather than increase, interest rates.
This week's data reinforces our view. UK employment figures revealed a rise in unemployment by 56,000 in August, causing the unemployment rate to climb from 3.8% to 3.9%, while wage growth slowed from 4% to 3.8%. Additionally, UK CPI inflation remained unchanged at 1.7%, well below the BoE’s 2% target.
Furthermore, the IMF downgraded its global growth forecast for 2019 to 3%, the slowest pace in a decade, citing the ongoing trade tensions between the US and China as a significant factor. The US growth estimate was reduced to 2.4% from 2.9% in 2018, and China’s projection was lowered to 6.1% from 6.6% in the previous year.
In the US, manufacturing weakness led the Fed’s Beige Book to describe the country's growth as "slight to modest," a shift from the previous description of "modest pace." This change is likely to prompt the Fed to cut US interest rates during their upcoming policy meeting at the end of October.
Looking ahead, the economic calendar for the coming week is relatively quiet. The ECB monetary policy meeting on Thursday (October 24, 2019) and Friday’s release of the University of Michigan Consumer Sentiment Index are the key economic events to watch.