The FTSE 100 is up just shy of 1% on the day, while the pound slid further on anxiety over the prospect of a no-deal Brexit, at one point trading as low as $1.23. In addition to the political uncertainty, the British currency experienced further weakness due to comments from the Bank of England that suggested that another interest-rate cut might be forthcoming, even if a no-deal Brexit is averted.
Elsewhere, Chinese industrial profits undershot expectations, and the Eurozone Business Climate Index fell to its lowest level in four years.
This gloomy outlook is unlikely to brighten in the near future. It seems increasingly likely that Prime Minister Boris Johnson may soon face a vote of no-confidence, opening the door for a Labour-led coalition government to take over.
Scottish National Party leader Nicola Sturgeon has indicated that the SNP is open to backing Jeremy Corbyn as Prime Minister, although such a deal would have to include the Lib Dems, who for now are refusing to back the Labour leader for PM.
Winners and losers
In terms of individual stocks, one of the the day’s biggest fallers is UK stockbroker Numis, which today issued a profit warning, causing its shares to sell off more than 8% as of writing. The company warned that the ongoing political uncertainty has been bad for business, saying: “UK equity capital market volumes and trading activity in UK equities have both declined significantly compared to the prior year”.
By contrast, things looked much better for UK housebuilder Persimmon, with shares trading up 4% to 2,150p a share on the news that the stock has received an upgrade from Jeffries (from ‘hold’ to ‘buy’). The brokerage’s note stated that market participants are overestimating Brexit risks, suggesting that the stock has been excessively beaten down.
Other winners included mining stocks, with Anglo American up 3% and BHP up 2.5%. These gains can be explained by the weakness seen in the pound today, as British companies with overseas earnings will do comparatively better than British companies focused on the domestic market.
More rate cuts?
The news coming out from the Bank of England was notable because of its source. Michael Saunders, a member of the BOE’s Monetary Policy Committee has been a rate hawk over the last few years, arguing for hikes even while his colleagues have demonstrated more dovish stances. His comment today comes as a big reversal, suggesting that the BOE will cut rates even if no-deal is averted.
What does this mean for investors? The prospect of lower rates should decrease the attractiveness of cash versus stocks. Consider opening a shares ISA in order to compound your capital. It is no longer possible to park cash in a savings account and rely on that interest to retire. Plan accordingly.
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Stepan Lavrouk owns no shares mentioned. The Motley Fool UK has recommended Landsec. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.