FTSE slides on Brexit warning

The positive open in London was not strong enough to sustain the FTSE for the rest of the day and stocks started getting battered over Brexit concerns. A stark warning from the UK government about a no-deal Brexit delivered a blow to a number of industries with home builders, the travel industry and airlines the hardest hit. Persimmon and Taylor Wimpey lost almost 4.50% in value, as did EasyJet.

Worried that PM Theresa May’s proposed Brexit deal will not be approved by Parliament in December the government rang alarm bells over a no-deal Brexit saying that this outcome would hit the UK economy hard, potentially making it shrink by almost 8%. The views are likely to be echoed by the Bank of England when it delivers its own assessment on possible Brexit outcome scenarios. The market will be particularly trying to gauge how the Bank will use interest rates over the coming months to reach the delicate balance of protecting the economy from a Brexit blow while at the same time making sure that inflation doesn’t spike. The pound showed some immunity to the government’s warnings and held its ground both against the dollar and the euro, buying $1.2752 and €1.1308.

US economy still going strong

Wall Street indices rallied after data confirmed what traders already knew: that the US economy is expanding at a very healthy pace and that corporate profits are showing remarkable growth. The latest GDP data showed that the US economy grew at 3.5% over the summer, unchanged from a previous estimate. But more strikingly corporate profits over the last 12 months rose 10.3% while earnings increased at a similar pace as the overall economy by 3.4%. Technology and internet stocks were the stand out gainers but traders kept a nervous eye on any news about the Sino-US trade discussions.

US oil reserves continue to rise

The level of US oil reserves is continuing to rise – for ten consecutive weeks on latest count – putting pressure on the WTI price which is now barely above $51. This is in sharp contrast to $75 where it traded at less than two months ago as the market was being whipped into frenzy over Iran sanctions. Friday and the weekend will be crucial for the oil market as heads of G20 states meet in Argentina. The black gold is expected to get a mention during the high level discussions as President Trump has been repeatedly asking for lower oil prices. Cheaper oil effectively acts as a tax break for US consumers but also benefits traditional manufacturing industries like car makers, metals producers, utilities and chemicals as the cost of oil contributes to their expenses. Brent crude has declined in line with WTI and traded just below the $60 mark towards the close of London trading.