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26 March 2019
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Global equity markets have steadied this week after soft economic data and geopolitics led stocks lower at the back end of last week. The Federal Reserve surprised investors last Wednesday with a dovish announcement that revealed it has scaled back plans for interest rate rises. An initial rally was reversed after the US Treasury yield curve inverted for the first time since 2007, an indicator that is widely associated with an upcoming recession.
The Fed’s more passive, data-led stance on rate hikes saw 10-year yields touch their lowest level in over a year, although yesterday saw a slight rebound.
The ongoing trade war between the US and China and mixed data from Europe added to fears about global economic growth. The Eurozone manufacturing Purchasing Managers’ Index fell to a 71-month low, owing to concerns about Brexit and export demand. In Germany, the Ifo Institute for Economic Research revealed that business confidence has risen unexpectedly in March, but a report from the GfK institute showed consumer confidence moving the other way.
In the UK, parliament has seemingly seized control of Brexit from Prime Minister Theresa May. Three government ministers joined other Conservative rebels in defying the three-line whip, helping to defeat the government in a crucial amendment. The success of the Letwin amendment means that parliament will hold a series of indicative votes, starting tomorrow, that MPs hope will reveal a majority-backed position to negotiate Brexit from.
Sterling is higher today, as is the FTSE 100, but 10-year Gilt yields dipped below 1% earlier, belying a lack of investor confidence. It is thought that the events of the last 24 hours have increased the chances of parliament supporting a softer Brexit and a longer extension, but May has not lost all control and her deal could yet be passed.
Finally, oil prices are rising this week with focus still on US sanctions on Iran and Venezuela and OPEC supply cuts. Last week, prices fell as much as 3.5% as outlook for global demand took a hit.
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Walker Crips
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