Henk Potts' Market Review
Henk Potts – Barclays Global Investment Strategist
Henk Potts joined Barclays Bank in 1998 as a graduate and worked as a Stock Market Analyst for Barclays Stockbrokers, focusing on UK equities. In 2009, he was appointed Director of Global Research & Investments for Barclays Wealth and Investment Management, where he works as part of a team formulating and communicating investment strategy to internal and external clients.
Henk analyses a wide variety of asset classes, including equities, currencies and commodities, as well as ascertaining and explaining the effects of macroeconomic changes on financial markets.
Weekly Review – Monday 28 November
Henk discusses the stories that dominated the headlines and moved the market over the previous week’s trading and also highlights the key events that are likely to dominate during the course of the week ahead.
The below content has been taken from Henk’s weekly podcast. If you’d prefer to listen to this, you can do so via Stockbrokers TV.
Global equity markets
Thanksgiving in the United States of course did create somewhat of a subdued market environment towards the end of the week, but you’re absolutely right. The post US election rally continued with the three major US stock indexes hitting record levels. The Dow and NASDAQ gained around 1½% last week; the S&P was up 1.4%.
What we have been seeing is this continued rotation of bonds into equities, and that’s certainly been a theme over the course of the past couple of weeks. US Treasury yields hit their highest level in 16 months as expectations for a rate hike in December by the Federal Reserve continued to increase. But also the likelihood of another rise coming through in June has been picking up. That in turn of course has been pushing the US dollar higher; in fact to levels not seen since 2003.
Of course a big week for markets this week: we’ve got the OPEC meeting, we’ve got the non-farm payroll on Friday and we’ve got the Italian referendum on Sunday, so lots to digest over the course of the next seven days or so.
Autumn Statement 2016
Well expectations of a post-Brexit slowdown created somewhat of a cautious backdrop to the Autumn Statement. There was no surprise in terms of the growth forecast being cut and the increase in terms of the borrowing requirement, but did find some money for modest tax cuts and an infrastructure investment programme.
In terms of the nation’s finances, the government as we know will need to borrow another £122bn over the next five years than expected back in March; officially abandoning the target of balancing the books by 2020.
In terms of the growth profile, the Office for Budget Responsibility said lower trade flows, lower business investment, weaker migration, would also cut Britain’s growth potential. Growth is forecast to fall according to the OBR to 1.4% in 2017, 1.7% in 2018. They’re still actually ahead of our expectations. We think we’ll see a more dramatic slowdown as you look out to next year.
From the investment perspective, the government said they’d invest between 1% and 1.2% of GDP in economic infrastructure as they try to improve the UK’s productivity, £1.4bn to develop 40,000 affordable homes.
In terms of the tax position, income tax threshold for higher rate taxpayers goes up to £50,000, and there’s a rise in the insurance premium tax to 12% from next June. But limited in terms of the impact it’s going to have on the economic position for the UK.
I think realistically we’re going to have to wait until next year to get some of the major announcements as we really start to get a better understanding of what the UK’s relationship with Europe is going to be, the impact that’s going to have in terms of the growth prospects.
And I think that shone out in terms of rather limited market reaction. We did see bond yields rise on the increase in borrowing, the deterioration in the nation’s finances. Housebuilders fell. I think those felt there was a lack of detail on the new investment scheme. Much of the good news has already been priced in. Estate agents were perhaps one of the big losers with the banning of one-off tenant fees. And utilities gave up early gains as the chancellor said he would look at pricing.
Hopes that the budget infrastructure spending would help growth was seen as positive for sterling however, which continues to recover against the euro; in fact hitting a 10-week high. So we have seen some movement in terms of foreign exchange markets, but as we know the outlook still remains incredibly uncertain.
I hope you’ve found this update interesting and I wish you every success for the trading week ahead.