WeeklyWatch – Time’s up for Theresa, but sterling shrugs off crisis

Tuesday 28th May 2019

Stock Take

May defeated by Brexit impasse

Last week saw Theresa May announce her resignation, opening the floodgates for a Tory leadership contest amidst fears over the future of Brexit, a debacle that arguably consumed the outgoing Prime Minister. After three failures to get her Withdrawal Agreement through parliament, May even tweaked it to hint at the possibility of a confirmatory referendum, but to no avail.

However, despite her final descent last week, sterling remained notably restrained against the dollar – as is often the case on markets, by the time a major anticipated event takes place, traders have already moved on. Likewise, the FTSE 100 shrugged off last week’s crisis, ending only marginally down for the trading period. Yet, investors should be aware that the appointment of a new leader does not necessarily signify a way out of the Brexit saga, given the split in the Commons and, of course, the country. Even the most proficient candidate is likely to need all the time remaining under the current transition extension (which expires on 31 October).

Theresa May will still be in situ to take the blame for the European Parliament election results and to receive Donald Trump on his state visit, before stepping down on 7 June. 10 Conservative MPs have already announced their intention to compete for the top job, with Boris Johnson, Michael Gove and Sajid Javid among the frontrunners.

Main parties devastated in European elections

The Tories are, by some definitions, the most electorally successful political party anywhere in the world – yet Europe remains their Achilles’ heel. Margaret Thatcher, John Major, David Cameron and Theresa May have all seen their premierships undone by this issue. In last week’s European Parliament elections, the party was almost obliterated, losing 15 of 18 seats in what was their worst election result since 1832. Labour didn’t fare much better, losing half of its seats. The major gainers, on the other hand, were the Liberal Democrats, who favour a second referendum, and The Brexit Party, which is very much at ease with a no-deal Brexit. In short, if you wanted to get a compromise Brexit deal through parliament, you wouldn’t start from here!

India ripe for reform

While UK politics remained in deadlock, events elsewhere in the world provided plenty for investors to think about. Narendra Modi was elected for a second term as Indian Prime Minister, only this time with an outright majority. As a result, he is expected to press on with economic reforms, his party’s brand of Hindu nationalism, and a rising assertiveness on the global stage. The SENSEX, India’s leading index, crossed the 40,000 mark for the first time, buoyed by Modi’s popularity with business. The rupee also rose against the dollar. Last week, the UN slightly downgraded India’s growth rate to 7%, but added that the country “continues to be the world’s growth leader”.

Trump blows hot and cold over trade talks

India’s progress was in stark contrast to Chinese stocks, which suffered on the latest round of developments in trade and technology. Donald Trump was inconsistent over trade talks last week, although he ended the week on a more positive note. The White House’s decision to accord Huawei a three-month grace period in which to launch its own mobile phone operating system may have looked like tokenism. But on Friday Trump said Huawei could form part of any US-China trade deal. The Shanghai Composite index ended the week down but not out.

US hopes to bridge trade gap with Japan

Trade tensions also dominated the agenda during the US President’s state visit to Japan. Between a round of golf, a sumo wrestling tournament, and becoming the first foreign leader to meet the new Emperor Naruhito, Trump said he hoped to get the trade gap with Japan “straightened out rapidly”. The US had a reported deficit of $56.8 billion in goods and services with Japan in 2018. Trump has repeatedly threatened Japanese and European carmakers with tariffs, recently delaying their imposition for six months in order to allow time to agree a deal. On Monday, the President said: “I think we’ll be announcing some things, probably in August, that will be very good for both countries.” Japanese officials denied that such an agreement had been reached on timing.

Following the Memorial Day national holiday, US markets will look to start the week strongly after last week’s reports of falling sales at high street chains JC Penney and Kohl’s – the latter saw an annualised 3.4% drop in same-store sales. On the other hand, new home sales in the US returned to an upward trajectory, suggesting economic sentiment isn’t flagging yet.

Wealth Check

New research from Fidelity International exposed the fact that only one in three self-employed people currently have any pension savings, compared to two in three of employed people.

The research also revealed that more than a quarter of them aren’t making any savings at all [1]. The findings add to fears that many self-employed workers are lagging behind in their retirement plans. As well as not making their own provision, they are missing out on employer pension contributions and currently falling outside the automatic-enrolment system.

Whilst an unpredictable income stream can make it difficult for self-employed people to maintain regular payments into a pension plan, the report highlights the fact that there are simple steps that self-employed people can take to get them on the path to achieving their long-term financial goals, for example extolling the flexibility and generous tax reliefs of ISAs.

The report shone a light on the particular challenges facing self-employed millennials, aged 23-38, of whom 43% do not feel they are saving enough for the future. Indeed, the report showed that 40% of self-employed millennials hadn’t even heard of a self-invested personal pension (SIPP). Yet the power of compounding means that those who do start their investment journey early in life can significantly boost their savings pot over the longer term.

[1] Fidelity International – Generation Self-Employed, May 2019

In The Picture

The graph below shows how the world is gradually switching to making its payments by smartphone – with Asia leading the charge.

The Last Word

Our only option now is to go back to the people in a referendum and that is the position we’re in now.

John McDonnell, Shadow Chancellor, spelling out Labour’s new Brexit position after the European elections.

The information contained is correct as at the date of the article.

The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place or Wellesley Wealth Advisory.

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