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12 April 2019

Uncertain Times

The US jobs report for March provided some respite for the markets, indicating that non-farm payrolls in the US rose by 196,000 last month and beating the 177,000 increase forecast by analysts.
 
This was a welcome upward revised gain from 33,000 in February, perhaps demonstrating that the last report was an anomaly rather than a trend. Wages increased 3.2% compared to the same month last year ago, slowing from last month’s 3.4% rise.
 
Stock markets rose on Friday following the fairly positive report, further aided by optimism surrounding the US-China trade talks. Moderated wage pressures provide a welcome distraction from economic slowdown fears, with the yield on the ten-year Treasury sitting around the 2.5% level. The rise from below 2.4% means the yield is back above that of the three-month Treasury bill, muting inverted yield curve murmurs for the time being.
 
Analysts predict that the recent statistics should quell fears of any further activity by the Federal Reserve, as they gauge the global economic outlook. The report confirms US growth is slowing, but paints a better picture than the doom and gloom predictions from last month, though it could be debated that labour market growth is a lagging indicator, presenting the argument that the economy could be in fact slowing down despite a strong labour market.
 
Meanwhile, in the UK, fresh retail sales figures released on 9th April indicated a slowdown in the first three months of 2019. Retail sales reported a rise of 0.6%, below the 1.8% growth recorded for the start of 2018. Headlines blame Brexit uncertainty; however, a like-for-like comparison cannot be made due to Easter falling in late April compared to March a year ago.
 
Department store Debenhams is one of the many names to suffer from weak retail appetite. The company has gone into administration after rejecting a last-minute offer from Sports Direct, which was conditional on Mike Ashley, founder of Sports Direct, being appointed Chief Executive. The share price closed at 1.83p on Monday and was suspended on the London Exchange early on Tuesday. The company has announced a pre-pack administration, where assets are sold prior to the appointment of administrators, resulting in zero equity value for current shareholders. This option will cause minimal disruption to business, employees and suppliers ahead of any restructuring.
 
The Brexit debacle rattles on, with further extensions and cross-party talks in a bid to break the parliamentary deadlock. The only thing of which we can be certain is that this prolonged period of uncertainty is reducing business confidence and investment within the UK. Business investment fell in every quarter of 2018 and at some point, will feed through to an otherwise strong job market. Businesses are desperate for clarity, so they can plan appropriately for future trade arrangements and, in turn, allocate resources to capital expenditure.
 
Uncertain Times
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