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Week In Review: Done Deal?

By Craig Hoyda, Senior Quantitative Analyst, Multi-Asset Investing

Do we have a deal? On Thursday, Boris Johnson, the UK’s prime minister, and Jean-Claude Juncker, the president of the European Commission, announced that the UK had reached a new exit agreement with the European Union. The deal has now been unanimously approved by the leaders of the EU. But will the UK’s parliament pass it?

As Northern Ireland’s Democratic Unionist Party has said that it will vote against the deal, the parliamentary arithmetic looks tricky for Mr Johnson. But a combination of former Conservative MPs, Labour rebels and independents could still get the deal across the finish line. Mr Juncker added support by indicating that the EU would not grant a further extension to the Brexit deadline of 31 October. Donald Tusk, the president of the European Council, later failed to rule an extension out, however.

The FTSE 100 endured a bumpy week as hopes that a Brexit deal might be achievable rose, receded and were revived. Overall, the index was down 0.89% by Thursday’s close, after it fell back from its high point on concerns that the agreement might not pass through parliament.

Optimism about a potential deal meant that the pound also strengthened over the week, reaching its highest level since May. So far, there has been no sign of any accompanying rise in inflation.

Earnings on the up

Wall Street enjoyed a strong week. For the first four days of the period, the S&P 500 was up 0.93%. But there was some mid-week uncertainty, too, as the Commerce Department reported that US retail sales had contracted in September.

It was the start of earnings season once again. Bank of America and Citigroup both beat expectations for the third quarter, and JP Morgan’s shares hit a record high after it outstripped estimates by a wide margin. Goldman Sachs fell short of forecasts, however. In the healthcare sector, Johnson & Johnson and United Health comfortably exceeded analysts’ expectations.

Tough talk on tariffs

In response to Turkey’s invasion of Syria, the US announced that it would impose sanctions on various Turkish government officials and departments. President Trump also tweeted that tariffs on Turkish steel would be doubled to 50%.

Progress in the trade talks with China appeared to stall during the week. According to Chinese negotiators, claims by the Trump administration last week of a "great" deal were premature. Beijing said that a pledge to buy US$50 billion of US agricultural goods would first require the US to lift tariffs. China continued its grind to more moderate economic growth, with third-quarter GDP figures indicating that the rate of economic expansion had slowed to 6% year-on-year.

Meanwhile, the US House of Representatives unanimously approved the Hong Kong Human Rights and Democracy Act, in a gesture of support for the territory’s protestors. China threatened retaliation, though it was not clear what form this might take.

Carrie Lam-basted

In Hong Kong itself, the Legislative Council (the territory’s parliament) was disrupted by heckling from opposition legislators. Carrie Lam, the chief executive, was forced to abandon her annual address, which she later delivered by video.

This was the first session of the Legislative Council since protestors stormed it in July. Ms Lam has agreed to withdraw the controversial extradition bill that initially sparked the protests, but demonstrators’ demands have widened to include four other points – as yet unanswered by the authorities.

Despite the ongoing political crisis, the Hang Seng index rose to its highest level in a month on Thursday, leaving it up 2.05% for the first four days of the week. Property-related stocks performed particularly well, helped by measures to promote home ownership that were (eventually) announced in Lam’s address.

Gloomy forecasts

The International Monetary Fund (IMF) cut its 2019 global growth forecast for this year from 3.2% to 3%. This is the slowest rate since the 2008 financial crisis. Describing the economic situation as “precarious”, the IMF cited the US-China trade war and central banks’ “limited ammunition” as causes for concern.

Despite Brexit, the IMF expects the UK’s economy to grow at the same pace as that of France (at 1.2%) and faster than those of Germany and Japan (where it estimates growth of just 0.5% and 0.9% respectively). As investors weighed the economic gloom against the news of a Brexit deal, the FTSE World Europe ex UK index was up 0.55%.

And finally …

It can move, eat and learn, but it isn’t an animal, fungus or plant. Cut it in half and it heals itself. Join two together, and one will share its knowledge with the other. Oh, and it boasts some 720 different sexes.

Meet the Paris Zoological Park’s newest exhibit, Physarum polycephalum – the ‘many-headed slime’. Nicknamed the ‘blob’, the unicellular organism is a species of slime mould. Although it looks like a fungus, it behaves more like an animal. And, somewhat bizarrely, as it lacks a brain, it’s able to solve various problems, such as finding and remembering the shortest path to a food source after being placed in a maze.

All that makes the blob of great scientific interest. Alas, it may not make for the most spectacular zoo exhibit; to the naked eye, it appears as merely a yellowish goo.

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