Market update – April 2019

“Brexit Day” – 29th March – came and went, but the UK remained in the EU. Prime Minister Theresa May was forced to seek an extension to the Article 50 process as the Brexit Withdrawal Agreement failed to get through the House of Commons for a third time. The UK is now expected to take part in European Parliamentary elections at the end of May, with a General Election, a change of Prime Minister or further cross-party talks all possible over the next few months.

Overall, the UK economy has held up reasonably well during this period of uncertainty. Unemployment is at 3.9%, the lowest rate since 1975. Wages growth has been ahead of inflation for more than a year, meaning wages have grown in real terms by 1.5% over the past year. Although growth has been subdued, stockpiling by manufacturers ahead of the original Brexit date helped the UK economy grow by 0.3% in the three months to February, on track for a small positive growth figure for the first quarter and projected 1.6% growth for the year as a whole.

The FTSE 100 Index rose by 2.9% over March, and 8.2% over the first quarter of 2019. UK large caps have outperformed since the referendum, as a weaker pound has flattered their dividend payouts and earnings. UK mid-caps are more domestically focused, and include a number of companies in sectors such as housebuilders and retail which are vulnerable to concerns over the impact of Brexit. The FTSE 250 Index fell by 0.3% over March but has gained 9.2% over the first quarter of 2019.

Signs of economic slowdown in the eurozone mean that interest rates in the euro area will remain unchanged until 2020 at the earliest. The European Central Bank (ECB) downgraded its assessment for economic growth, cutting its forecast this year from 1.7% to 1.1%, and next year from 1.7% to 1.6%. France’s CAC 40 Index rose by 2.1% during March, while Germany’s Dax Index edged up by 0.1%.

The US bull market reached its ten-year anniversary on 9th March to become the longest-running bull market in the history of the S&P 500 Index. Meanwhile, US interest rates appear unlikely to rise during 2019 in an environment of decelerating economic growth. Policymakers at the Federal Reserve (Fed) changed their predictions for 2019 and now expect no upward movement this year and only one increase next year. The Dow Jones Industrial Average Index ended March largely unchanged, while the S&P 500 Index rose by 1.8%.

Optimism amongst Japanese business deteriorated over the first three months of 2019, according to the Bank of Japan’s quarterly Tankan survey of business sentiment. The Nikkei 225 Index fell by 0.8% during March.

Closer to home, the Northern Ireland unemployment rate has fallen to 3.0%, but 56% of those unemployed in NI are long-term unemployed (unemployed for one year or more), significantly higher than the 26% figure in the UK. The economic inactivity rate (the number of people aged 16 to 64 not working, not seeking or available to work) has fallen to 26.6%, still consistently higher than the UK average.

The latest figures from the NI Composite Economic Index showed that the NI economy grew by 0.2% in the final quarter of 2018 to reach a 10-year high, but is still 4.6% below the pre-recession peak of 2007.

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