Global Markets Update - 09-07-18

Posted on 09 Jul 2018

The global trade war escalated when the US imposed a 25% tariff on $34 billion of imports ranging from water boilers and lathes to industrial robots and electric cars.

 In response, China is reaching out to the EU to form a united front against US president Donald Trump’s trade policies.

Global Market Update - 9th July 2018

United Kingdom

The FTSE 100 slid 0.25% over the week.

Theresa May managed to get the cabinet to agree to new proposals for a ‘soft’ Brexit. The proposals, which have yet to be presented to the EU, outline a free trade area for industrial and agricultural goods, based on a "common rule book" and a "combined customs territory". There will be different arrangements for trade in services, including financial products, with greater "regulatory flexibility" and "strong reciprocal arrangements". Freedom of movement will come to an end but a "mobility framework" will ensure UK and EU citizens can continue to travel to each other's territories and apply for study and work. In addition, the UK will be able to control its own tariffs and develop an independent trade policy. Finally, the jurisdiction of the European Court of Justice will end but the UK will pay regard to its decisions in areas where common rules are in force.

The IHS Markit/CIPS services purchasing managers’ index rose to 55.1 in June, up from 54.0 in May and the highest level since last October.


The IHS Markit/CIPS manufacturing purchasing managers' index inched up to 54.4 from a downwardly revised 54.3 in May, while the construction index picked up to 53.1 from May’s 52.5.
Tesco and Carrefour, Europe’s two largest supermarkets, have joined forces to lower supplier costs in a bid to take on the likes of Aldi and Lidl.

US
The S&P 500 rose 0.8% over the week. However, large industrial companies were negatively affected by the introduction of a further $34bn of tariffs on annual Chinese imports to the US on Friday.

Non-farm payrolls rose by a stronger-than-expected 213,000 in June, but the unemployment rate ticked up to 4% from 3.8%, as the strong labour market encouraged more people to look for work.

Average hourly earnings rose at an unchanged pace of at 2.7% in June, slower than forecasts of 2.8%.

The ISM manufacturing index rose to a four-month high of 60.2 in June, while the ISM non-manufacturing index rose in June for the first time in four months.

Biogen shares surged after reporting positive clinical trial results for a drug to treat Alzheimer’s. Pfizer raised the prices of 100 of its best-known drugs. 

Europe

The Eurofirst 300 gained 0.8% over the week. European carmakers jumped amid hopes that the planned US tariffs would be abandoned in exchange for concessions.

A report late on Wednesday that suggested European Central Bank officials were uneasy that investors were not betting on a eurozone rate rise until December 2019.

Eurozone producer price growth rose 3.0% year-on-year in May, up sharply from 1.9% in April as oil prices rallied.

German factory orders climbed 2.6% in May, rebounding after an upwardly revised 1.6% fall in April.

Japan

The Nikkei 225 dropped 2.3% over the week.

Pacific Basin

The Caixin Markit purchasing managers’ index of Chinese manufacturing activity eased to 51.0 in June, from 51.1 in May, as export orders shrunk.

Emerging Markets

Poland’s top judge refused to leave her job as she defied government changes to the country’s judicial system. Critics in both Poland and the wider EU fear that the rule of law — a cornerstone of membership of the EU, which Poland joined in 2004 — is being undermined.

Turkish inflation hit a 14-year high of 15.4% in June, triggering calls for a fresh interest rate hike. President Erdogan continues to insist that rates should be slashed.

Bonds

The gap between the yields of two- and 10-year US Treasuries fell to 27bps, a fresh 11-year low as the yield on the 10-year Treasury bond closed the week at 2.83%.

Currencies

The Mexican peso had its best week in nearly seven years, buoyed by a landslide victory for left-wing nationalist Andrés Manuel López Obrador in the country’s presidential election.

The Caixin Markit purchasing managers’ index of Chinese manufacturing activity eased to 51.0 in June, from 51.1 in May, as export orders shrunk.