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London stocks slipped at the end of last week after a weak monthly US non-farm payrolls report and as investors sought out the safety of government bonds ahead of the coming weekend’s Constitutional referendum in Italy. And quite rightly so: stocks opened in the red on Monday morning as Italian Prime Minister Matteo Renzi resigned after he conceded defeat in a constitutional referendum, with investors concerned about the political and economic instability that might ensue.

In the UK, the construction sector expanded further in November with business activity and incoming new work increasing at the strongest pace in eight months. Importantly, Bank of England Chief Economist Andy Haldane said, against the backdrop resilience shown by the economy, the bank rate was now as likely to rise as to fall.

‘If the economy weakens and more stimulus is required, there is a risk that the so-called zero lower bound on interest rates may constrain room for maneuver. BOE staff have conducted simulations to assess the probability of this in the future and put it in the range of 15–40%,’ Haldane explained.

Sector-wise, property shares were boosted by the better-than-forecast UK construction PMI data. Land Securities, British Land and Hammerson rallied. Berkeley Group also had a good run after the property developer reported an increase in first-half earnings and revenue that beat forecasts. Mining stocks, on the other hand, came under some selling pressure, including BHP Billiton, Antofagasta and Rio Tinto, as copper and silver prices fell.

In the US, employers added 178,000 jobs in November (consensus: 180,000). However, the rate of growth in average hourly earnings fell back from a 2.8% year-on-year clip to 2.5%. This can be taken as a positive for those that weren’t overly keen on a December rate hike. The tightening of fiscal conditions since September are sufficiently large to forestall a hike benefiting emerging markets in particular in the short term.

Looking ahead to this week...

With the biggest news item of the Italian referendum results out of the way early on, there are a few key market catalysts that we should look towards.

Wednesday, 3:30pm – US EIA crude inventories: stockpiles expected to rise by 500,000 barrels from a fall of 884,000 barrels a week earlier.

Thursday, 12:45pm – ECB policy decision (press conference at 1.30pm): the focus here will not be on interest rates, which are expected to remain at 0%, but instead on whether quantitative easing is boosted. If so, we could see a move higher in European indices.

Friday, 7:00am – German trade balance (October): surplus expected to drop to €20.2bn from €24.4bn a month earlier.

Friday, 9:30am – UK trade balance (October): deficit expected to drop to £3.4bn from £5.2bn a year earlier.


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