Financial market research and analysis

After a horrific October, there are tentative signs that the gloom is starting to lift. Wall Street ended on a stronger note, but Asian markets gave a mixed performance overnight. Chinese stocks rallied as investors cheered signs that officials will increase stimulus to support the nations slowing economy. This comes as data showed the Chinese manufacturing PMI unexpectedly climbed 0.1% to 50.1, narrowly avoiding contraction.

Europe is also looking towards a mixed start. The FTSE is lagging behind its peers, weighed down by the stronger pound.

Brexit optimism has returned, and the pound has found its mojo. Comments by Brexit Secretary Dominic Raab that a Brexit deal should be nailed down by 21st November, in addition to reports that a tentative deal has been struck for UK financial services has sent the pound 1% higher across the previous session and overnight.

The financial services deal means that the EU will accept that the UK has equivalent regulations to Brussels, allowing UK financial service firms to operate as they do now, in the case of a no deal Brexit. Shares within the Financial sector could be in demand as the FTSE opens. Given the importance of the UK Financial Services sector, this is the news that investors and firms have been waiting for.

Will the BoE Give the Pound A Leg Higher?

As Brexit optimism boosts the pound, investors will look towards the BoE’s Super Thursday for further clues on sterling. In conjunction with the monetary policy decision, the central bank will also release its quarterly inflation report. Interest rates are not expected to change, with all 9 policymaking members expected to vote to keep rates on hold. A 25-basis point rate rise is not fully priced in until December next year owing to Brexit uncertainty and slightly softer recent data.

As a rate hike is not on the cards, investors will be paying particular attention to any changes in economic projections and the general tone of the minutes. There are undoubtedly some positives to the UK economy at present. Unemployment is low, wages are increasing at a much healthier pace and inflation remains above the 2% target level. However, uncertainty surrounding Brexit combined with recent weaker than forecast data means a downside revision for GDP is more likely than any upside improvement.

Inflation exceeded the central bank’s 2% level and increased month on month in September. Sterling has also fallen which could create further inflationary pressures.

Since we have passed the initial deadline for a Brexit deal, we can expect Bank of England Governor to be increasingly more nervous about the downside risks of a no deal Brexit and the potential need for easing under this scenario. Should BoE Governor Mark Carney spend a significant amount of time focusing on these downside risks of Brexit and the softer data, then we could expect the pound to give back some of its overnight gains. On the other hand, should Carney focus on the upside risk of inflation and recent reports that a Brexit deal will be done within 3 weeks, then the pound could rally towards $1.30.

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