UK PMI Data Disappoints

November 25, 2019

Markit’s Purchasing Managers Indices for November released last week, undershot expectations. Manufacturing PMI’s came in at 48.3 against 49.6 expected, and Services was 48.6 vs 50 expected. A reading below 50 represents a contraction in activity. While this data was disappointing and points to a slowing of the economy in the fourth quarter, leading indicators in the UK have been less reliable over the last several years as companies have had to deal with Brexit uncertainty and moving deadlines. This will typically lead to periods where stocks are built up and drawn down, making demand and production erratic. The upcoming general election will have also added to this uncertainty. Typically, poorer readings have been followed by less shocking data in subsequent months.

China Stimulus

Global markets were supported on Wednesday last week as the People’s Bank of China delivered a cut to its one-year and five-year loan prime rate and ordered state-owned banks to expand lending and lower borrowing costs. This is the latest in a number of small, incremental steps to loosen monetary policy and support economic growth. The potential of a partial trade deal between China and the US remains although the consensus is less favourable than it was several weeks ago when the prospect was first raised. Additionally, continued disruption in Hong Kong is still weighing on markets in the region. The city’s economy is now contracting, with the latest figures suggesting a fall of over 3% to quarter on quarter GDP. The elections held in the city showed huge support for the pro-democracy candidates, perhaps indicating that this is not a problem that will fade in the near future.

Saudi Aramco IPO 

After many years of speculation, the Saudi Arabian state-owned oil company, Saudi Aramco, is finally scheduled to complete its initial public offering. The hoped-for valuation of $2tn is unlikely to be met, and it is expected that it will ultimately be listed for approximately $1.2tn. However, only a small proportion of the company will be sold at this stage, and the bulk of that is expected to be sold to domestic investors, another disappointment. The Kingdom had hoped to raise international capital from the sale; however, concerns over governance, government ownership, political risks and ultimately the long-term sustainability of oil, have all weakened demand. Nevertheless, the listing will enable markets to provide an ongoing price for the company, should the state wish to offload more shares. Saudi Arabia is forecast to come under increasing financial pressure as revenue from fossil fuels decline, accelerating the need to transition the economy away from fossil fuels.


Market Data

  % 1w* % 1m*
UK 0.37% 1.97%
US 0.27% 4.57%
Europe ex UK -0.27% 2.17%
Japan 0.33% 4.72%
Emerging Markets 0.55% 2.06%
Oil 0.55% 7.18%
Gold 0.27% -0.89%