Political volatility – weekly update 17 December

Political volatility – weekly update 17 December

Ben Seager-Scott
Published: 17 Dec 2018 Updated: 13 Jun 2022

A vote on the Withdrawal Bill was pulled last-minute

In the UK, a vote on the Withdrawal Bill was pulled at the last minute, but that didn’t end the political excitement as disgruntled Conservative backbenchers triggered a confidence vote in Prime Minister Theresa May. Ultimately the PM won the vote, but at the cost of having to commit to not leading the party into the next election and with a weaker level of support than she may have hoped for.

The subsequent dash around Europe in the hope of securing further concessions failed to bear fruit making it difficult to see a way forward for the bill. Of the economic data released, Industrial Production added to the glum mood, falling considerably more than expected, from flat year on year (yoy) in September to a -0.8% fall in October (a modest -0.1% contraction was expected). Wages data were more upbeat though, as Average Weekly Earnings growth for October accelerated from an upwardly revised 3.1% to 3.3% yoy (three-month period), comfortably ahead of the 3.0% expected, and the fastest pace post-global financial crisis.

The ECB announced that its QE asset-purchase programme would end with 2018

The ECB announced that its QE asset-purchase programme would end at the end of the year, entirely as expected, and came with dovish commentary. The governing council signalled that the reinvestment process (that is, continuing to allow the programme to roll over) would continue for an ‘extended period’ and that there was the potential to replace special (TLTRO) support for banks.

At the same time, ECB staff marginally revised down their forecasts for growth and inflation whilst ECB President Mario Draghi talked about risks ‘moving to the downside’ with the current codephrase being ‘continued confidence with increasing caution’. Markets are now not pricing in any interest rate hike until 2020, although there is the possibility of a technical change in the deposit rate which, at -0.4%, perversely means savers have to pay to give their money to the bank (in theory, at least).

In the economic data, PMI surveys were very disappointing, with the Eurozone Composite PMI reading falling from 52.7 to 51.3 (an increase to 52.8 was expected) with both Manufacturing and Services sub-indices impacted – this was largely attributed to the disruption caused by the ‘yellow vest’ movement in France which saw the French PMI reading fall into contractionary territory. Conversely, industrial production growth was surprisingly strong, accelerating from 0.8% to 1.2%, defying forecasts for a fall to 0.7%.

Data signals were more mixed from the US

Data signals were more mixed from the US, with strong retail sales but further disappointment from the Markit PMI surveys. Headline Retail Sales beat expectations, rising 0.2% month on month (mom), which was ahead of the 0.1% expected, and came as the prior month’s reading was revised up from 0.8% to 1.1%. While the reading may seem low, much of this was down to the significantly reduced receipts from gas stations as fuel prices fell.

The Retail Sales ‘Control Group’ is often used as a barometer of core consumer activity, stripping out fuel, cars, food and building materials, and this measure rose from an upwardly revised 0.7% (which was 0.3%) to 0.9%, well ahead of the 0.4% expected. Against this, the Composite PMI reading from Markit fell over a whole point from 54.7 to 53.6 impacted by both Services and Manufacturing disappointments. Industrial Production rebounded from a downwardly-revised -0.2% to a very healthy 0.6% mom, beating forecasts for 0.3%. All in all the data suggest the outlook for the US remains buoyant, and by the end of Friday markets were pricing in a 72% probability of a hike at the upcoming Federal Reserve meeting.

Last week’s other events

  • In its latest batch release of data for November, China reported a slip in Retail Sales from 8.6% to 8.1% yoy (8.8% was expected), though the year-to-date reading was more positive, growing 9.1% compared to a year earlier as expected and only slightly down on the 9.2% registered in the previous month. Industrial Production cooled from 5.9% to 5.4% yoy (no change was forecast) whilst Fixed Asset Investment picked up from 5.7% to 5.9% yoy (year-to-date, 5.8% was expected)
  • US CPI inflation cooled from 2.5% to 2.2% yoy as expected. Excluding food and energy, the reading rose from 2.1% to 2.2%, again, in line with forecasts
  • In Japan, the Eco Watchers Survey Outlook reading picked up from 50.6 to 52.2 (50.8 was expected) and Core Machine Orders rebounded from -7.0% to 4.5% yoy, though this was slightly short of the 5.0% expected
  • The Eurozone Sentix Investor Confidence reading fell sharply from 8.8 to -0.3, the lowest level since the end of 2014

The markets

Markets were seemingly pausing for breath last week with few events to really move the dial, though the political volatility in the UK weighed on sterling.


Equities were generally moving sideways last week, though a dip on Friday left the more volatile bourses underwater. Japan’s TOPIX was the worst performer, which didn’t really recover from early weakness in the week and closed down -1.8%; this was followed by US equities, as the S&P 500 was down -1.2%. Both the UK and Europe had a better week, returning a marginal but positive 0.6% each (MSCI indices). The MSCI Emerging Markets index returned -0.3%.


There was relatively little direction in core fixed income markets as well. 10-year US Treasury yields rose 4 basis points (bps) to finish the week at 2.89%, 10-year German bund yields were effectively unchanged at 0.25% whilst the equivalent UK gilt yields were down 3 bps to finish at 1.24%.


Brent Crude was only marginally weaker by the end of the week, and still closed above the US$60 mark at US$60.28 per barrel. Gold surrendered some of its recent strength to finish at US$1,239 per ounce and copper was flat at US$2.76 per lb.


Sterling fell during the week as the political volatility continued, falling -1.1% against a broadly-stronger US dollar. Sterling closed on Friday at US$1.26, €1.11 and ¥143.

The period ahead

The weekly macroeconomic and market review will resume in the new year, week commencing 7 January 2019. Whilst a lot of people will be on holiday over this period, macroeconomic releases, political events and market movements will continue.

Highlights, at least in terms of the scheduled data, will include the last Federal Open Market Committee meeting of the year, concluding on Wednesday, where a majority of market participants are expecting the Federal Reserve to hike interest rates to a new range of 2.25-2.5%. Both the Bank of Japan and Bank of England conclude their monetary policy meetings on Thursday though no policy change is expected from either. On Friday there is the risk in the US of a partial Government shutdown as President Donald Trump fights for funding for his wall along the US-Mexico border.

We will of course have the mainstays of economic releases including inflation data, retail sales and PMIs from many regions of the world, and our first note of the New Year will come following the December US labour report which usually has a lot of market focus.

In the meantime, I wish you all a Merry Christmas and a prosperous 2019 – see in you the New Year!


This article was previously published on Tilney prior to the launch of Evelyn Partners.