The FTSE 100 moved back above the 7,000-point marker again in end-of-week trade. These fresh rises kept the strong momentum of the final days of January going and raised hopes of a significant improvement in investor appetite following 2018’s washout.
The bubbly start to February was built upon positive news surrounding US-Chinese talks and a less-hawkish Federal Reserve. Great news, sure. But let’s not get carried away. While a breach of this key Footsie barrier could lead to additional gains in the coming sessions, there still remain a catalogue of other issues that may well drive the index southwards again.
European economies on the rocks
Concerns surrounding economic deterioration in Continental Europe ratcheted up in the latter parts of 2019 and, unfortunately for the Footsie and the many companies with significant exposure to the continent, conditions seem to be getting worse.
Data last week showed Italy lurched back into recession in late 2018, the economy falling 0.1% and 0.2% in quarters three and four of 2018, respectively. It’s the third time in just a decade that Rome has to battle back from falling into economic contraction and exacerbates existing tension surrounding the condition of all European economies.
Adding to investor worries, numbers also released last week from Eurostat showed that collective GDP growth across the European Union’s 28 member countries grew just 0.3% quarter-on-quarter between October and December.
Fears of contagion are increasing and even regional powerhouse Germany is being tipped by many to follow Italy’s move into recession in 2019, a development that would deliver a hammerblow to stock markets across the globe. A painful no-deal Brexit separation would add another layer of pressure to these suffering economies as well, of course.
The US shutdown starts up again
It has been estimated that the 35-day US government shutdown that concluded on January 25 took a sizeable bite out of the country’s economy. In fact, research released last week by the Congressional Budget Office suggested that the closure cost the country $11bn. While it appears as if the majority of this sum can be recovered, the body estimates that a whopping $3bn cannot.
Government services may be up and running again, and federal workers getting paid, but another damaging shutdown could be just around the corner — on February 15 in fact, once the current temporary deal runs out.
President Trump’s demands for Congress to fund his $5.7bn border wall continue to be rebuffed by Democrats in the House. No side wants to back down in this high-stakes game of political chicken and so the US economy stands on the brink of taking another painful hit. Poor manufacturing data from the States recently has raised speculation of an economy about to slow in the months ahead, and a fresh shutdown is likely to raise market jitters even further. That’s a concerning spectre for all global stock markets.