The Markets - A Review
Brexit negotiations continued and, at the beginning of December, the U.K. and the European Union (EU) found an agreement on the first part of the negotiations. They found compromise on the Brexit bill, citizens’ rights and the Irish border. With these points now settled, the dialogue can now move to the second stage, which will continue over the coming months. We believe that the U.K. pound and U.K. equities, in particular, will remain volatile depending on the progress of the negotiations.
European macro-economic data remain strong, with manufacturing PMI, industrial production and employment figures continuing their upward trend. Eurozone inflation temporarily slipped and, with oil prices up 40% over the past six months, it will not take long before it returns to the 2% European Central Bank (ECB) target.
The euro outperformed across the board, as the European growth outlook remained positive and the eurozone break-up risk from Catalonia’s referendum seemed to reduce. Though initial German coalition talks have fallen through, the markets seem optimistic about some possible return of the grand coalition.
Sterling continued to be volatile, as the Bank of England’s first hike in November was well priced in by the market. In addition, the government budget failed to impress investors, resulting in some Sterling strengthening when progress on Brexit negotiations were made.
