Financial markets have been described as casinos, rollercoasters and merry-go-rounds. Recently, though, they’ve been more of a seesaw. The playground favourite was much in evidence this week. As the pound peaked on Wednesday, the FTSE 100 cratered – before they then swapped direction, with the FTSE rising as sterling fell back.
The reasons for this seesaw behaviour are well rehearsed: a weaker pound benefits many of the biggest UK-listed companies, because they derive so much of their income from abroad. The FTSE managed to recover to a 0.2% gain at Thursday’s close, while the pound slumped back from its midweek high. There could be much more of this come. Credit Suisse suggested this week that the pound might fall another 5-6% against the dollar. Good news for FTSE investors, perhaps; not so good for consumers.
Four-fingered fears
That’s because it’s consumers who bear the brunt of a weaker pound. Consumer prices are already on the march. UK inflation was 1% for the 12 months to September – a two-year high. But the rise probably doesn’t yet show the impact of the weaker pound. Initial signs of the price hikes to come manifested themselves in last week’s short-lived Marmite crisis – the spat between Tesco and Unilever. After restoring the spread to his shelves, Tesco CEO, Matt Davies said this week that rising food prices could be “lethal” for low-income consumers.
Even that tuck-shop favourite the KitKat could be affected. Paul Bulcke, the CEO of Nestlé, said on Thursday that his company’s UK branch would consider “all possible actions” to deal with sterling weakness. But he did seek to reassure anxious consumers that the KitKat would remain a “very enjoyable great break”. And despite the prospect of higher prices, UK shoppers are in good spirits. Surveys released during the week pointed to a considerable rebound in consumer confidence, with Deloitte reporting that confidence was at a five-year high in September.
Hard or soft?
We’ve come to expect plenty of playground behaviour from politicians, and there was considerable seesawing this week over the nature of Brexit. Will it be hard or soft? Hard was in the ascendancy at the start of the week, but Philip Hammond, the Chancellor of the Exchequer, said on Wednesday that the City was a “high priority”. He argued that the possibility of a special deal to preserve the UK’s passporting rights for financial services was still very much alive. That gave hope to those who prefer their Brexit on the softer side – and the shares of banks rose in response. The FTSE’s strongest constituents over the week were RBS, Barclays, Standard Chartered and Lloyds.
In continental Europe, markets delivered solid returns. Despite some disappointment when the European Central Bank refrained from extending its stimulus programme, the FTSE Europe ex UK Index was up 1.2% for the week to Thursday’s close.
Rough and tumble
Playground behaviour continued to characterise the White House race too. “You’re the puppet!” said Donald Trump during the third presidential debate, after Hillary Clinton suggested that President Putin might be pulling Trump’s strings. And they were at it again the next night at the Al Smith Gala dinner. Trump called Clinton “corrupt”; she pointed out that the US was going to have either “the first female president or the first president who started a Twitter war with Cher”.
It was a good week for US shares, with the S&P 500 up 0.4% by Thursday’s close. The feisty exchanges of the third debate were seen as going Clinton’s way, and the Mexican peso hit a six-week high against the US dollar as Trump’s chances of victory were seen to recede further.
And finally …
You’d be forgiven for thinking that Americans have seen quite enough of the presidential candidates. But Halloween masks based on Trump and Clinton have been selling well, suggesting that the US is set to see a great deal more of them in the week ahead.
In previous elections, sales of presidential candidates’ masks have been a good indicator of who’s most likely to win. But while Clinton holds a formidable lead in most opinion polls, her Republican rival has been winning the costume race. According to suppliers, sales of Trump masks have been outstripping Clinton ones by as much as three to one.
This year might be an outlier, however. After all, Clinton and Trump are considered to be the two least popular contenders on record, suggesting that their suitability for a Halloween horror show might be unusually high. Be afraid! Be VERY afraid!
Image credit: UrbanZone / Alamy Stock Photo
