UK politics erupted once again as Boris Johnson announced that he was to call an end to the current parliamentary session for up to five weeks beginning as early as 9th September. While proroguing parliament is generally a regular event, the timing has drawn criticism from those opposed to a no-deal Brexit, calling out the Prime Minister for blocking debate and potential countermeasures. The timing of the suspension will potentially allow only one week before and three after for the opposition to launch a counterattack. Financial markets remain confused over what all of this means, with the pound fluctuating as some anticipated that the move would increase the possibility of a no-deal and others believing that it means a higher chance of a deal or additional extension. As ever, the speed of developments and uncharted tactics being used make it very difficult to predict outcomes, leading to many market participants continuing to discount UK assets on the basis of uncertainty.
Figures out last week confirmed that the German economy contracted in the second quarter of the year by 0.1%, as expected. So far, the prospects for the third quarter also look weak, with inflation and retail sales both coming in lower than expected. Nevertheless, some leading indicators in the Eurozone are showing signs of life. Money supply data for June and July showed accelerating growth, to the extent that other economic data should be signalling a turnaround in the economy by the end of the third quarter. With many investors and the European Central Bank anticipating continuing economic weakness, the strengthening of the Eurozone economy would provide a significant positive surprise. However, if this meant that monetary policy would not be as loose as expected, markets may not necessarily take the news well.
The weakening of the Chinese currency in August came to nearly 4% against the US dollar and marked the biggest monthly fall in 25 years. Since early 2014 the currency is over 18% weaker, and at 7.15 per dollar, it is at its lowest since 2008. The fall in the currency is reflective of the slowing of the Chinese economy and loss of competitiveness as a result of the ongoing trade war with the US. The US has labelled China as a currency manipulator, and the Chinese authorities are likely managing the currency lower to offset some of the damage from US tariffs and boost the economy. While further falls are broadly expected, so far there has been little evidence of capital flight or aggressive positioning against the currency.
|*GBP Returns||% 1w*||% 1m*|
|Europe ex UK||2.28%||-1.82%|