Post Brexit, the UK economy has proved to be remarkably resilient. Manufacturing, employment, retail sales and consumer confidence have all been positive.
This resilience appears to be despite the political backdrop and the lack of clarity from the government. It has been two months since the vote and the best that David Davis could manage in his statement to the house yesterday was ‘[Brexit] means getting the best deal for Britain – one that is unique to Britain and not an “off the shelf” solution’. I may be being slow, but I thought that is exactly what we had before the referendum… outside of Schengen, a rebate, not in the Euro, a veto on ever greater union etc.
Obviously the three musketeers (Fox, Davis and Johnson) have been having a productive time at Chevening and managed to craft this position: ‘In conclusion: we are confident of negotiating a new position that will mean this country flourishing outside the EU.’ Really! Like, OMG. Am I being harsh to expect more from the first statement to the House following two months of planning? I would LOL, except it makes me want to cry.
Despite all of this, according to Markit, the powerhouse of the UK economy – the service sector – has rallied in the past month. The Markit/CIPS purchasing managers’ index showed activity in UK services recorded the biggest month-on-month rise in the survey’s history, rebounding to 52.9 in August from 47.4 in July. The month-on-month gain, was the largest observed over the 20-year survey history, following a record drop of 4.9 points in July. The overall composite PMI for August – which combines readings to give an overall view of private sector performance – improved to 53.6 from 47.6 in July.
Yesterday, the pound rose to a seven-week high after the above data was released. Sterling slumped 14 per cent against the dollar directly after Brexit, but following the PMI above and early data (including retail sales, GDP and unemployment) has meant that there has been a decline in net short positions for the first time in eight weeks. This led JPM to‘suffer one of its worst weekly losses this year as neither Janet Yellen nor the UK economy followed the expected script’.
Another sector that got absolutely hammered post Brexit were the house builders, some of them being down by 40%. This morning, the FTSE 250 builder Redrow published some stellar results; at the time of writing it was up almost 5% and rising towards its pre-Brexit level. This is a trend that can be tracked across the sector, with all major names recovering much of their post-Brexit losses.
Are the first cracks appearing? UK retail sales have deteriorated unexpectedly in August, posting the weakest performance since 2014. This is a reversal in fortunes since the strong figures of July. According to a monthly report from the British Retail Consortium and KPMG, like-for-like sales fell 0.9 per cent, down from a 1.1 per cent gain in July and short of the 1.4 per cent gain forecast by economists.
Is this a sign of things to come? Interestingly enough, the Markit report pointed to rising inflation as a potential headwind, while the British Retail Consortium highlighted slow real wage growth – both pretty fundamental issues.
In addition to these (and conflicting data), investors will need to grapple with a huge amount of activity this September, which will likely shape the rest of the year.
First off, there’s the ECB meeting on Thursday, where investors will want to see what Super Mario has up his sleeve. The main question will be, is there enough stuff for him to buy?
The Bank of Japan meeting is next up on 20 September (coinciding with our event, actually – Where are the post-Brexit returns?). Will the negative interest rate policy be retained?
The Fed is then meeting and there remains uncertainty, following Friday’s weaker-than-expected US employment data, as to whether there will be an interest rate rise. GS, Barclays and BNP are backing a rise, but others are not so sure.
Less documented is the International Energy Forum on 26 September, where Opec will hold a meeting on the sidelines… will they plan to freeze output?
If this all seems a bit dull, then by all means look out for the first US presidential debate, also on 26 September. This might focus investors minds as to what a Clinton or Trump presidency might look like. They might not be in power yet, but with little more than two months to the elections, the US electorate can at least expect them to have a plan… two months is long enough to come up with something, isn’t it?