Fed & China Fears Kill Midterm Election Rally

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Taking the lead from US and Asia overnight, the FTSE fell through 7100 on the open and failed to retake the level across the day. Key factors such as trade war fears and higher interest rates, that weighed on sentiment and pulled the markets lower in October, have returned to haunt investors at the end of this week.

A more hawkish than expected Fed quickly extinguished the midterm election rally before it had time to take off. An upbeat assessment from the Fed fuelled fears of rising interest rates increasing borrowing costs and dampening economic growth.  These concerns were coupled with Chinese trade data fanning fears over the US – Sino trade war. Stronger than forecast Chinese export figures, most likely from front loading, highlight exporters concerns that tariffs will increase again in January. President Xi and President Trump plan to meet at the G20 in Buenos Aires later this month; however, we don’t expect a fundamental change in position from either side. Heavy weighted miners dragged the FTSE lower, with the likes of Anglo American and Glencore trading off over 4.5%.

Pound Stumbles on mixed data and declining Brexit optimism

A weaker pound failed to offer support to the falling FTSE index. Brexit optimism which had buoyed the pound over recent sessions was starting to run dry by Friday. After a week of rumours and reports that a Brexit deal was just days away, pound traders now want to see the evidence. Until there is something more substantial to go on, the pound could remain under pressure.

A mixed bag of economic data did little to support the pound.  UK economic growth remained firm at 1.5% year on year, in line with expectations. On a quarterly basis, GDP ticked lower to 0.6%, down from 0.7%. However, on a monthly basis GDP missed expectation remaining flat, rather than showing growth of 0.1%. The monthly figures are notoriously volatile so must be taken with a pinch of salt. However, two readings at 0% are depressing, regardless of Brexit uncertainty.

Crude sub $60

Oil prices continued to dive on Friday, putting the black gold in line for a 4.1% loss across the week, extending 6% losses from the previous week. Rising supply concerns and weakening economic growth are a toxic combination for oil, with crude now below $60 per barrel. Prices had been rising in anticipation of the US sanctions on Iran. However, a waiver granted by the US allowing 8 countries to purchase Iranian crude means that oil supply will be higher than the markets originally assumed.