Your Q3 2019 market commentary

Even by recent standards, the third quarter of 2019 was unpredictable and volatile. Brexit continues to dominate the headlines in both the UK and in Europe, and the election of a new prime minister appears to have increased the chances of a disorderly exit from the European Union.

In your Q3 2019 market commentary, we review all the main economic and political stories of the latest three months, and the latest economic data.


The third quarter of 2019 began as the previous quarter had ended: with political upheaval. Boris Johnson won the Conservative leadership contest and became the UK’s new prime minister in July, promising to leave the EU on 31 October.

Indeed, he claimed he would rather ‘die in a ditch’ than ask for another extension; something he may have to do if the courts uphold the recently passed Benn Act.

Seven Commons defeats and a ruling from the Supreme Court that his prorogation of parliament was unlawful means it has been an inauspicious start for the new PM. And, a raft of economic data continues to show that the UK may be heading towards a recession – even before we have departed from the European Union.

The UK economy contracted in the three months to July, marking the first quarterly decline since 2012. Two consecutive quarters of falling output are the technical definition of a recession, and analysts are holding their breath for the next set of official growth figures.

Duncan Brock, Group Director at the Chartered Institute of Procurement and Supply, said: “Deferred client orders and reduced consumer spending as a result of Brexit uncertainty and a slowing global economy meant hard-pressed businesses started to lose their battle against the hardest conditions for about a decade.”

In September, continuing uncertainty also saw the pound touch its lowest level against the dollar since October 2016. Excluding October 2016’s ‘flash crash’ (when the pound briefly fell sharply to $1.15 against the dollar before rapidly rebounding) sterling has not traded regularly below $1.20 since 1985. This is compared to the rate of around $1.50 before the EU referendum in June 2016.

During August the pound also dropped to a decade-low against the euro of €1.07.

There was also a negative sentiment among many UK businesses:

The problems on Britain’s high streets also continued this summer. Tesco announced that it was cutting 4,500 jobs from its Tesco Metro stores while Argos owner Sainsbury’s said that it was also planning to close 50 stores.

The most famous name to collapse this summer was package holiday firm, Thomas Cook. The travel agent failed to secure capital to see it through the winter, resulting in the loss of 9,000 jobs and the biggest peacetime repatriation in British history.

In more positive news, UK inflation fell to its lowest level since late 2016 as the end of summer sales kept clothing prices down, while economists suggested that some companies were waiting for the outcome of Brexit before putting prices up.

The consumer price index (CPI) fell to 1.7% in August from 2.1% in July, easing some of the pressure on consumers. However, economists warned that weakness in the pound since Boris Johnson became prime minister combined with a no-deal Brexit could push up inflation again in future.


Eurozone economic growth is forecast to slow to 1.1% this year from 1.9% in 2018, which would be its worst performance in six years. 

“German industry is in recession, and this is now also impacting the service providers catering to those companies,” said Claus Michelsen, head of forecasting and economic policy at the German Institute for Economic Research (DIW Berlin).

Italy also saw a flatline in growth, partly due to continued political uncertainty. Prime minister Giuseppe Conte resigned in August following Matteo Salvini’s decision to withdraw from the country’s ruling ‘yellow-green’ coalition, although, in an unprecedented move, subsequently returned to power at the head of a new coalition.

With growth slowing in the Eurozone, ECB president Mario Draghi unveiled a package of measures to ease monetary policy in the euro area. These included:

The move met with an immediate response from US President Donald Trump, who controversially claimed the ECB was deliberately weakening the euro to help companies sell goods overseas:

This prompted a swift rebuttal from Draghi, who insisted that he was simply following his mandate. He said: “We have a mandate. We pursue price stability and we don’t target exchange rates. Period.”


The economic expansion in the US entered its 11th year in July, making it the longest expansion since 1900.

However, as the effects of fiscal stimulus from the 2018 tax cuts begins to fade, growth has slowed. The manufacturing sector slipped into a recession during the first half of the year, and capital investment is also weakening. Recent data from the ADP Research Institute also showed that hiring at US companies is cooling, with employers adding just 135,000 jobs in September.

All this means that analysts expect growth in GDP to slow to 1.7% next year.

July saw the central bank announce its first cut to its benchmark overnight lending rate in two years – and then followed this up with another cut two months later. The rate now stands at a target range of 1.75% to 2%, with the committee citing ‘the implications of global developments for the economic outlook as well as muted inflation pressures’ as the primary rationale for the cuts.

Stock markets rewarded the Federal Reserve with a rally that took the Dow Jones Industrial Average from a two-month low of 25,479 on 14 August back up to a near-record 27,219 on 13 September. 

Rest of the World

In a new report, the United Nations has warned that weaker growth in both advanced and developing countries means the possibility of a global recession in 2020 is a ‘clear and present danger’.

The UN’s trade and development body, UNCTAD, said 2019 will endure the weakest expansion in a decade and there was a risk of the slowdown turning into outright contraction next year.

China’s economy continued to falter in the third quarter after GDP growth slowed to a near three-decade low in Q2 2019. 

The ongoing trade war between China and the US once again escalated again in late August following the US decision to increase tariffs by 5% on all Chinese goods from 1 October. Although the two countries agreed to resume trade talks in early October, the likelihood of a truce anytime soon appears low.

Around the world, low inflation is allowing central banks to ease their monetary policies to tackle faltering economic growth. The Fed and ECB both loosened the reins in recent weeks, while Japan could follow suit before year-end. Among developing economies, China cut the reserve requirement ratio in August, while Brazil, India and Russia all cut their interest rates.

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