Global Markets Update Monday 16 July 2018

Posted on 16 Jul 2018

The US-China trade war continued to intensify as President Trump ordered preparations for tariffs on a further $200 billion of Chinese imports.

Some US multinational companies warned the consequences could outweigh the benefits of last year’s tax cuts.

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United Kingdom

The FTSE 100 rose 0.6% over the week.

At the start of a two-day visit to the UK, President Trump was quoted by The Sun newspaper as saying that the UK government’s latest Brexit proposals would “kill” the prospect of any US-UK trade deal and criticised Theresa May’s handling of negotiations. In a press conference at Chequers, the president later appeared to dial back on his comments, saying they were “fake news”. This was despite The Sun releasing audio recordings, backing up the president’s original comments.

Two key Brexiteers David Davis and Boris Johnson quit over the government’s Brexit proposals, only days after they had signed up them at Chequers. A couple of more junior ministers also resigned. 

The UK economy expanded 0.2% over the three months to the end of May, after no growth between February and April, as spending was boosted by the royal wedding and warm weather.

US

The S&P 500 gained 1.6% over the week, closing at a five-month high while the Nasdaq hit a record peak.

Fed chair Jay Powell gave an upbeat assessment of the economy, predicting that tax cuts and spending increases could deliver a “significant” boost to the economy for at least the next three years. He hardly mentioned the trade concerns or worries over the shape of the yield curve – issues with which the market is pre-occupied.

Headline US consumer prices rose to a six-and-a-half year high of 2.9% in June, up from 2.8% in May. Core consumer prices, which exclude volatile food and energy, also ticked up to 2.3% in June, compared to 2.2% in May. This took them to an 18-month high.

US producer prices rose 0.3% over the month of June, taking the year-over-year reading to 3.4 per cent, its highest level since 2011.

As the second-quarter earnings season kicks off, results from Citigroup, JPMorgan and Wells Fargo disappointed, leading to a weak financial sector.

Europe

The Eurofirst 300 rose 0.7% over the week.

Eurozone industrial production surged 1.3% in May, the largest monthly increase since November 2017.

Eurozone investor confidence as measured by Sentix rose to 12.3 in July, from 9.3 in June. However, data for Germany showed a decline to 16.2, the sixth decline in a row and the lowest reading since February 2016.

German exports fell 1.3% in May on a year-on-year basis, while imports rose 0.8%.

Eurozone house prices are rising at the fastest level since the financial crisis, rising 1.9% in the 12 months to the first quarter of 2018. The strongest gains were seen in Latvia, Slovenia, Ireland, Portugal and Slovakia. In response, many central banks are imposing stricter cap on mortgage lending levels.

Japan

The Nikkei 225 rallied 3.7% over the week.

Pacific Basin

Chinese exports rose by a stronger-than-expected 11.3% on a year-on-year basis in June, although this was down from the 12.6% recorded in May. Imports increased 14.1% in June, below estimates of 20.8% growth.

China’s official producer price index rose by a larger-than-forecast 4.7% year-on-year in June, ahead of the 4.1% increase recorded in May. The consumer price index rose 1.9% in June, which was in line with forecasts and up from 1.8% in May.

Singapore’s economy expanded by a slower-than-expected 3.8% in the second quarter, compared to the same period a year earlier, as manufacturing output eased.

Exports from the Philippines fell for a fifth consecutive month in May while imports continued to climb.

Emerging Markets

Fitch downgraded Tukey’s credit rating from BB+ to B. During the week, President Erdogan appointed a relative to serve as the country’s finance minister.

Bonds

The yield on the 10-year US Treasury bond closed the week at 2.83%, while that of the 10-year German Bund closed at 2.28%.

The yield difference between two-and 10-year US Treasuries hit 26.5 basis points, close to the lowest level since August 2007 – just prior to the start of the Great Financial Crisis. A negatively-sloped yield curve usually predicts a recession is imminent.

Currencies

The Canadian dollar hit a one-month high versus its US namesake after, as widely expected, the Bank of Canada raised interest rates.

Commodities

Concerns over an escalating trade war helped drive copper and nickel prices to one-year lows, while Brent crude suffered its biggest one-day drop in two years during the week.