The FTSE 100 regained some ground after initially getting caught in a global sell-off as investors worried about a potential ‘no-deal’ Brexit following a backlash to UK Prime Minister Theresa May’s draft Brexit deal.
The proposed deal led to a sharp drop in the pound and several resignations, including Brexit Secretary Dominic Raab, while Jacob Rees-Mogg submitted a letter of no-confidence, putting May’s leadership at risk. By close on Thursday (15 November), the FTSE 100 traded only 4.3 points higher at 7,038.
Next Tuesday (20 November) there are updates on the US housing sector with reports on building permits and housing starts. There is also a meeting of OPEC and other oil rich countries scheduled, which may address the recent significant fall in the oil price. Next Wednesday (21 November) monthly US durable goods orders data is released. This shows the total value of new purchase orders placed with manufacturers for durable goods and is a leading indicator of industrial production. Next Thursday’s (22 November) planned testimony from Bank of England Governor Mark Carney and his colleagues before MPs could be closely watched amid the current Brexit tensions. Friday (23 November) sees a series of purchasing managers’ index surveys on the Eurozone economy.
The news of Brexit secretary Dominic Raab’s resignation on Thursday (15 November) after the Cabinet had given tentative backing to a draft Brexit deal the night before put pressure on two of London’s more domestic-focused sectors.
Housebuilders suffered some serious share price damage as a trading update from Bovis Homes (BVS) referencing Brexit uncertainty looked eerily timely. While sales rates and house prices achieved were in line with expectations and roughly flat year-to-date, the company notes an increasing number of buyers are choosing the part-exchange option. Bovis saw its shares fall sharply and the rest of the sector followed suit, including Persimmon (PSN), Barratt Developments (BDEV) and Taylor Wimpey (TW.). Other real estate related stocks were also on the back foot with commercial property investor British Land (BLND) a notable victim.
Banking stocks also reacted negatively to the news. As the most domestically-focused stocks in the FTSE, banks and housebuilders bore the brunt of the sell-off in June 2016 following the original vote to leave the EU. If investors felt that the risks of a ‘no-deal’ Brexit have risen with the news on Raab, it’s logical that these stocks were the worst affected by selling pressure.
In a fast-moving situation it is hard to know exactly what will happen in the coming seven days regarding Brexit, but sterling is likely to be volatile as, at the very least, there is a possibility of a leadership challenge to Theresa May. If May can hold on, then the next key date currently in the diary is a special EU Brexit summit which has been tentatively pencilled in for 25 November ahead of a likely vote in Parliament on the deal in mid-December.
If the pound falls the FTSE 100 typically performs strongly as it boosts the relative value of overseas earnings, which dominate those generated by index constituents. Investors can get low-cost exposure to the FTSE 100 through iShares Core FTSE 100 (ISF), which has an ongoing charge of just 0.07%.
20 November – First half numbers from online electricals play AO World (AO.) are due just ahead of the crucial Black November retail sales event and, of course, Christmas. The results, themselves are already pretty much known thanks to a trading update alongside the announced acquisition of mobile phone retailer MPD on 9 November, although this will offer a further opportunity for management to spell out what they see as the benefits of the deal.
20 November – Full year results from EasyJet (EZJ) will follow a period of turbulence for the share price caused by industrial action in France and a downbeat tone on guidance for the current financial year given in September. The spotlight is likely to fall on whether the company intends to follow up apparent interest in struggling Italian airline Alitalia and on fuel costs.
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