Weekly View: Turkey Time
With the Leave voters having joined forces, Boris Johnson’s chances of a Conservative party majority have gone up. Since Nigel Farage’s Brexit party stood down in a number of constituencies to unite the Leave vote, the Conservatives will now face a divided group of Remainers, who are split among five parties. At the same time, Johnson’s chances of securing a majority are far from a done deal. Following last week’s debate, Jeremy Corbyn is looking relatively better as a candidate than he did before, having shown a strong performance overall. If Johnson’s Conservative party does manage to secure a majority in next month’s UK general elections, UK-domestic plays will benefit.
Some signs of encouragement have come through in purchasing manager indices (PMIs). Japan and Europe both saw improvements in November. Within Europe, Germany and France both saw improved results, while Spain fell into contraction territory. Overall, the latest PMI prints suggest European growth is stabilising at a weak pace. The key factor at play for both European and Asian economies will be which direction the US economy ultimately takes. We will want to see a rebound in US consumer confidence and activity to avoid heightened recession risk. Indeed, former Fed chair Janet Yellen has added her voice to the recession-risk watchers, voicing her concerns about deterioration in US corporate lending standards. We could start to see the US dollar roll over in coming months.
The US Senate’s unanimous passing of the Hong Kong Human Rights Act sent ripples of rhetoric through the Chinese Communist Party. Asian markets turned risk off on the increased uncertainty around Hong Kong. While we think the Chinese leadership may issue some sort of soft retaliation, we do not think that the US-China trade talks will be fatally impaired by this development. It is still in the best interests of both parties to strike some kind of deal and we therefore believe that one is still on the table. Because of this we are positive on Asia within emerging markets. The week ahead should be a quiet one and we wish everyone a Happy Thanksgiving.