Dear readers,

Autumn’s chill descended upon London this week, the dreich* weather matching the national mood. The proliferation of festive decorations has failed to brighten the outlook. Talk is not of Xmas but Brexmess, as the prime minister attempts to push through an unpopular EU separation deal.

And for the City, another cut of the knife. European governments want to keep the mechanism they use to sell their debt within the EU. So, from next March, they will access the €13bn-a-day MTS cash platform not from London but Milan. A desire to stay within EU financial markets has already inspired Refinitiv to say it is transferring its $300bn-a-day foreign exchange swaps business to Dublin. The €250bn-a-day BrokerTec repo trading operation, owned by CME Group, is moving to Amsterdam.

Cranes still puncture low clouds in the City and Canary Wharf, but they mostly reflect plans made before the Brexit referendum in the summer of 2016. Indeed, the Tulip, the latest proposed edition to a London architectural lexicon already containing the Gherkin, Cheesegrater and Walkie-Talkie, will be a 1,000ft visitor attraction. No offices.

That said, if the City is hollowing out, it does not seem to be overly affecting demand for established prime London real estate. The building in which your correspondent sits has just been sold by Pearson, the Financial Times’ former owners, to M&G for £115m. That’s 28 per cent above the asking price. Association with the Pink ’Un was clearly behind the valuation, and obviously not the location on thriving Bankside overlooking the Thames.

Residential is another matter. UK house prices dropped by more than £5,000 on average this month, according to website Rightmove. The Nationwide Building Society said the annual rate of house price growth last month slowed to its slowest pace since 2013. Homeowners are chopping asking prices, notably at the top end of the London market.

All this, note, without a sudden surge in supply. Weaker foreign demand is pressuring a market which is too expensive for many Britons. The FT posed the question: Will UK house prices ever rise again? The biggest dinner party of the year — Christmas — will have plenty for attendees to discuss.

Best to pop down the pub. For some Britons, boozing is essential rather than discretionary spending. Brexit angst can be eased by a pint or two of Old Peculiar. But that bar person is less and less likely to come from Poland or the Czech Republic. Fewer EU nationals are seeking work in the UK. This is pressuring labour costs. Pub chain JD Wetherspoon has just increased pay rates but doesn't feel confident about nudging up prices to compensate.

Still, a pleasant surprise for the sector came from that rarest of beasts; a drawn-out, hot UK summer which encouraged extra quaffing. A World Cup semi-final for Gareth Southgate’s charges boosted attendance, too. But it would be a very foolish chief executive who based his or her strategy on the (relative) success of the England football team.

And it would have been a disappointed investor who chose a FTSE 100 tracker fund as the basis for their portfolio. The UK’s blue-chip index — down 9 per cent in the year to date — always seems to find a way to disappoint. More demand for healthcare may boost the FTSE’s pharma sector — with an index weighting of 11 per cent — but, unconnected, a falling oil price might then clobber the energy stocks, a 17 per cent weighting. Rising interest rates could bolster the banks (almost 13 per cent). But concerns that tighter global monetary policy will crimp growth may hit the miners (about 10 per cent).

Then there’s tech. Just. Only three constituents qualify for the software and technology hardware sectors, for a FTSE 100 weighting of less than 1 per cent. That has hobbled the FTSE’s performance in recent years. It has trailed the tech-heavy S&P 500 by 8 per cent in 2018 as structural tailwinds have boosted valuation for the likes of Google and Amazon. Now the FTSE’s tech desert seems like a godsend. Since the US tech meltdown began at the start of October, the FTSE has outperformed its Wall Street peer by 3 per cent.

More may be to come. About 75 per cent of FTSE 100 revenues originate abroad. A weaker pound tends to boost valuations. A Brexmess may deepen the gloom over London. It could brighten prospects for its blue-chip barometer.

May the sun shine on you wherever you are.

Jamie Chisholm
Lex writer

* dreich: adjective (Scottish): chilly, miserable, as in: “Theresa turned up her collar against the dreich wind and the angry glances of backbenchers as she made her way into the Commons.”

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