Welcome to our latest update on the investment market. We take a quick look at some of the key factors that influenced the stock market in October and could continue to do so over the coming months.

The global economy continues to have a gloomy outlook. In October, the World Trade Organisation slashed its global forecast to the lowest in a decade. The organisation now predicts growth of 1.2% this year, compared to the 2.6% estimate it gave in April this year. As is still a common theme, the reduced expectations were linked to Brexit uncertainty and ongoing trade wars.

The new Managing Director of the International Monetary Fund Kristalina Georgieva also used her inaugural speech to warn the global economy is now in a synchronised slowdown urging politicians to act. It points to continued volatility for investors.

UK

Unsurprisingly, in the UK, Brexit continues to be the key topic on everyone’s lips.

For a short time, it looked as though the UK would be leaving the EU on the 31st October deadline. Prime Minister Boris Johnson managed to get his deal through the first stage this month, beating predecessor Theresa May, but that’s as far as it got. We’re now set to have a general election on 12th December, indicating the Brexit uncertainty is far from over.

Nissan has also waded into the Brexit debate. The Japanese car maker has said it would review its decision to build the Qashqai sport utility vehicle in Sunderland if the UK were to leave the EU.

The UK narrowly avoided recession. Whilst the economy shrunk by 0.1% in August, it’s still up 0.3% over three months. The figures have gone a little way to easing fears that a recession is on the horizon. Overall, statistics paint a gloomy picture:

  • Markit data suggests factories are cutting jobs at their fastest pace for six years
  • The construction industry is now shrinking at a faster pace, the PMI fell from 45 in August to 43.3 in September, figures below 50 indicate contraction. Jobs in construction also fell at their fastest pace since December 2010
  • Retailers in the UK suffered their worst September in at least 24 years, according to the British Retail Consortium. This is coupled with data from Barclaycard finding retail spending on credit cards was also subdued
  • Worryingly, the UK’s dominant service sector is now declining along with manufacturing and construction
  • The housing market has stalled, with prices falling 0.2% nationally in September, according to figures from Nationwide. London leads the fall with a 1.7% decrease
  • One bright spot in the figures was TV and film, which helped boost GDP thanks to several box office productions

Moving on to some company news, an inquiry was launched into the collapse of Thomas Cook. Executives were questioned by MPs about remuneration policy and accounting practices, among other areas, after the travel firm collapsed at the height of the holiday season this summer, leaving thousands stranded.

Another much-loved British brand is facing challenges too. John Lewis Partnership is looking for discounts from landlords amid struggles that meant it made a loss in the first half of the year for the first time. A major shake-up is underway at the company though; one in three senior management HQ jobs will be cut as it merges running John Lewis and Waitrose.

Europe

Europe continues to be affected by both Brexit and the US-China trade war; the manufacturing PMI fell from 47 in August to 45.7 in September, the lowest reading since October 2012.

Germany, often seen as the stalwart of Europe, has also seen a flurry of negative news. Growth forecasts have been slashed to 0.5% for this year and 1.1% in 2020. This compares to previous estimates of 0.8% and 1.8% respectively. Factory orders slumped by 6.7% year-on-year in August and exports fell 3.9%.

Tellingly, a Sentix survey revealed that Eurozone investor morale has hit a six and a half year low. With difficult conditions continuing, it’s a sentiment that may not pick up for some time.

New US tariffs on some EU products also came into effect on the 18th October. The tariffs of 25% affect a wide range of products from across the continent, including French Wine, Italian Parmesan, Spanish olives and Scottish whisky.

US

Statistics in the US also point towards a slowdown.

Factory output fell at its fastest rate in a decade, falling to 47.8. The news affected stocks on both sides of the Atlantic with prices falling in response.

President Donald Trump celebrated unemployment figures as they fell to 3.5%, the lowest since December 1969. However, this statistic shows just one side of the job market; wage growth fell below expectation indicating that the unemployment figures may be unsustainable.

The Federal Reserve also cut interest rates to the 1.5%-1.75% range as business investment and exports continue to be weak. Despite Trump urging action for months, he still blasted the move, stating the Fed had been too slow to act.

Now on to an area that’s having global consequences; the trade war between the US and China.

Even basketball became implicated in the issue after General Manager of the Houston Rockets expressed support for Hong Kong. China’s state broadcaster, CCTV, then halted plans to air the league’s pre-season games.

Whilst tensions have been rocky between the two countries this month, there could be a deal just around the corner. The US blacklisted 28 Chinese firms, citing human rights violations. The Beijing Foreign Ministry accused Washington of ‘smearing China’ over the crackdown. However, by the end of the month, Trump indicated that he could sign a preliminary trade deal very soon. Meetings will continue into November.

Asia

Of course, the trade war with the US continues to have an effect on China. The country missed its economic growth forecast. GDP grew 6% between July and September. Whilst this is still within its target range, it may be a reminder that the fast-paced growth of China can’t last forever.

Another key issue in Asia is the ongoing protests in Hong Kong. The special administrative region of China has now faced months of protests with tensions continuing to escalate. As a result, it’s not surprising that the country has now fallen into a recession.

Keep an eye on our blog for more investment updates.

If you have any concerns about your investment portfolio in light of recent events, please get in touch.