Weekly outlook: May delays Brexit vote (again); long overdue US GDP; telltale housing data

The key events for UK wealth managers for the week starting 25 February

The stage was set for political fireworks this week with Theresa May (pictured) due to face another trial by parliament over her Brexit deal, until the prime minister announced she would be pushing back the vote yet again.

Speaking while travelling to an EU-Arab league summit in Egypt on Sunday the prime minister confirmed she would not hold the ‘meaningful vote’ on the government’s final Brexit deal on Wednesday (27 February) as intended.

Now MPs could have to wait until 12 March to have their say, just 17 days before Britain is due to exit the European Union.

In a tweet Labour leader Jeremy Corbyn accused the prime minister of “recklessly running down the clock to force MPs to choose between her bad deal and a disastrous No Deal”.

But May said over the weekend that talks with the EU are “still ongoing” and leaving on 29 March was “still within our grasp”. She and her team are due to arrive in Brussels on Tuesday for further discussions.

US/UK housing stats

Elsewhere, analysts will be scanning the US and UK housing data out this week for any signs of weakness, which could potentially signify a possible recession ahead.

Bloomberg is forecasting the US housing starts, due on Tuesday (26 February), at 1.25 million. Peter Sleep, senior portfolio manager at 7IM, said while this is a “big recovery” from the bottom of the market in 2009 when only 554,000 houses were started, this is “still way short of the long-term trend which is closer to 1.5 million new starts given US household formation growth”.

“The National Association of Home Builders points to shortages of skilled labour but shortage of bank finance to the home builders is also probably a factor here too,” he said.

The UK Nationwide House Price Index is published on Thursday (28 February). The Bloomberg consensus shows a modest decline of -0.1% but Sleep points out this is on low volumes and does not fully capture the price weakness being experienced in London and the southeast.

“The weakness in house prices that is not captured in the Nationwide numbers is certainly captured in the stock price of Foxtons, Rightmove and Purplebricks,” he said.

US GDP Q4

The long overdue fourth quarter GDP figures for the US are to be released at last on Thursday (28 February) after being held up by the longest government shutdown in history.

AJ Bell chief investment officer Kevin Doran expects to see Q4 growth coming in at the 2.5% to 3% range on an annualised basis. “Obviously that will give us a bit of a steer to something that is far more important, the next move from the Federal Reserve,” he said.

Market expectations around US interest rate hikes in 2019 have been ratcheted down considerably, providing a welcome boost to risk assets and allowing markets to bounce back from their December lows, Doran noted.

“You go back three to six months ago and people were expecting three maybe four rises but now it’s probably more like one in the next 12 months.”

How much of that is down to Trump’s meddling and attempts to sew doubt about chairman Jay Powell’s stated course of action is up for debate, said Doran, although he worries that elsewhere central banks’ integrity is being compromised.

“We do see the Federal Reserve remaining independent, but you look at what’s going on around the globe. The sanctity of central bank independence is definitely under threat in comparison to what it was five to 10 years ago.”

UK earnings season continues

We are now thoroughly in the thick of UK earnings season, with FTSE 100 giants Standard Chartered, ITV, Rolls Royce and Rio Tinto all set to report this week.

Among the Share Centre’s list of stocks to watch is British American Tobacco (BAT), which has seen its share price dive 40% in a little over a year thanks to tightening regulation in the US. Whether the tobacco giant’s shares experience some relief when it reports on Thursday (28 February) will be down to the success of its next generation products and its reported cash flow, the stock broker said.

Doran said AJ Bell will also be keeping a close eye on real estate investment trust Hammerson, which reports on Monday (February 25). Like fellow Reit British Land, Hammerson has been hurt by its retail exposure and is currently trading at a “significant discount” to its net asset value, he said. It stands in stark contrast to Reits with large exposure to big box distribution assets like Tritax which Doran said are trading on massive premiums.

“It’ll be really interesting when those results come out whether they have taken into account the change in perception on the values of the retail portfolios and whether that gets reflected in a fall in net asset value or whether the value remains persistent in what they think the property is worth.”

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