It’s been a bit of a nervous week in equity markets, and not a brilliant week for bonds. In Europe, the ECB did its best to help EU equities; while UK stocks are lagging for several reasons, mostly associated with all things Brexit in the minds of many city commentators.
Regardless of any general view on our exit from the European monolith, the inability of our lead negotiator to be consistent with the Prime Minister (or even just with himself) suggests degrees of ineptitude. It is a small irony that, Theresa May’s best political ally currently seems to be Angela Merkel. A reasonably warm relationship is emerging, much helped by May’s evolving humility. Merkel, the European leader most able to concentrate on European issues (rather than internal considerations), must be watching the continued rise of anti-immigration sentiment across EU and what it means for the EU negotiating position. Despite the confrontational noises from the negotiators, it may be that the sides are getting closer, not further apart. We’ll have more to say on this in the next couple of weeks.
Whatever the case, the negotiations were probably not at the heart of our stock market’s performance. This week there have been three ‘stand-out’ results on the FTSE 100. First up, – Barclays shares were down 7.4% to their lowest in a year, after the bank missed estimates for the third-quarter, on the back of weak trading performance at its investment banking division. Barclays has been the worst-performing bank on the FTSE 100 this year, down 18.6% year-to-date. The more UK-centric Lloyds Banking Group, owner of the biggest UK mortgage book, saw their shares rose supposedly because of potential rate rises. In the pharmaceutical sector, GlaxoSmithKline shares fell, its biggest daily fall in 9 years, to their lowest level since the Brexit vote. Still, Morgan Stanley estimates UK 2017 earnings growth of more than 20%, against 12.6% in Europe. Unfortunately, a lot of this is on the expectations of a weaker pound.
