The Monday Note - 15 October 2018

• The FTSE 100 closed at 6,995.9 on Friday, down nearly 323 points on a week earlier, as investors responded to concerns over tech share values. However, the FTSE 100’s price to earnings ratio at 11.5 is not particularly high by historic standards. 
• The ten year Gilt yield hardened to 1.63% on Friday, down from 1.73% a week earlier. However, this marks a significant increase on three months ago, when yields stood at 1.28%. 
• UK GDP increased by 0.7% in the three months to August, driven by the retail, IT, and professional sectors. Growth in August itself was flat, as the hotel and catering sector paused for breath after a strong July. 

Chief Economist comments: 

Economic autumn arrived last week, with tumbling stock markets and more Brexit fireworks. My view on both is that, like the recent bracing weather, it will blow over. The stock market is having a rotation. Tech shares have flown high, so investors are taking profits. Yet, with bond yields rising, I expect investors to eventually return to equities, probably targeting sectors that have become overlooked. On Brexit, the May government wants to free up its hard Brexit war chest for higher public spending in the upcoming budget – and urgently needs to move debate on to something else. Meanwhile, Brussels is turning its attention towards Italy. On Brexit, both sides want to settle the matter.