Global Markets Update Monday 18 June 2018

Posted on 18 Jun 2018

President Donald Trump and Kim Kong Un met in Singapore. The US agreed to suspend military exercises with South Korea and to lift sanctions against North Korea provided North Korea progresses with nuclear disarmament.

Fears of a trade war escalated after President Trump has decided to impose a 25% tariff on $50bn in imports from China. Beijing immediately responded in kind. In response, China said it would begin imposing its own 25% tariffs on US products worth $34bn including soya beans, beef, whiskey and off-road vehicles. It also threatened to target another $16bn of US energy exports.

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United Kingdom

The FTSE 100 lost 0.6% over the week.

Theresa May became embroiled in controversy over a commitment she made to pro-Remain MPs that MPs would have new powers in the final stages of Brexit.

Retail sales rose 1.3% over the month of May, with warm weather and the royal wedding as factors boosting spending. This followed an increase of 1.8% in April.

The National Institute for Economic and Social Research (NIESR) said growth between March and May was just 0.2%,

UK inflation held steady at 2.4% in May, as rising oil prices were offset by falling food costs.

Wage growth slowed to 2.8% in the three months to April from 2.9%.

Manufacturing output fell 1.4% in April, the biggest decline for nearly six years.

US

The S&P 500 closed the week flat.

The Federal Reserve raised rates by 25bps to a range of 1.75%-2.0% and forecast two more rate rises in

2018 (one more than previously forecast), followed by three in 2019, amid a bullish outlook for the US economy. While some took Fed chair Jay Powell’s accompanying comments to be hawkish, others pointed to his suggestion that the Fed was willing to tolerate an inflation overshoot in both 2019 and 2020 rather than clamping down on price growth. 

US consumer prices rose 2.8% in May compared with a year ago, the fastest annual rise in six years. Core inflation, which excludes food and energy, rose to 2.2% compared to 2.1% in April.

US retail sales jumped 0.8% in May, the strongest rate in six months, as tax cuts and strong employment growth boosted incomes.

Producer prices rose 3.1% in May, the fastest annual rate of growth since January 2012.

Comcast launched a $65bn rival bid for specific assets of Twenty-First Century Fox, beating the existing $52bn offer from Disney.

Europe

The Eurofirst 300 rose 1.0% over the week.

The European Central Bank left interest rates on hold but announced it was to end its bond-buying programme. It will halve the size of monthly asset purchases to €15bn after September and then phase them out entirely after the end of this year. However, in its accompanying statement, the ECB stated that rates would stay at current record low levels until at least mid-2019.

Angela Merkel faced her own political worries amid a feud with her coalition partner the CSU over Germany’s asylum policy.

Italy’s new finance minister Giovanni Tria said that Italy had no intention of exiting the eurozone, and that the government was committed to reducing the country’s debt level.

Eurozone industrial production fell 0.9% in April.

The ZEW Indicator of German economic sentiment dropped to a weaker-than-expected -16.1 in June. The reading was the lowest since 2012.

Japan

The Nikkei 225 gained 1.5% over the week.

The Bank of Japan kept interest rates on hold. It noted that the economy is "expanding moderately" with rising private consumption, solid business investment and higher corporate profits, and said inflation is in the range of 0.5 to 1% with inflation expectations "more or less unchanged".

Pacific Basin

China’s retail sales, investment growth and industrial output each grew at a slower pace than expected in May. Retail sales growth showed a slower-than-expected year-on-year increase of 8.5%, while total fixed-asset investment growth slowed to 6.1% and industrial output rose 6.8%. 

Emerging Markets

Turkey’s economy grew 7.4% in the first quarter of 2018, adding to concerns of overheating.

Bonds

The yield difference between two-year and 10-year Treasury bonds slipped below 40 basis points for the first time in a decade.

The yield on Italy’s two-year bond fell to 0.66% following reassuring comments from the new Finance Minister. This compares to a yield of over 2.7% just three weeks ago,

Commodities

Oil prices fell amid fears that Saudi Arabia and Russia were prepared to increase crude output. Brent fell below $74 a barrel to its lowest level since early May.

Currencies

The euro fell sharply as the European Central Bank adopted a cautious approach to ending its stimulus measures. Meanwhile the US dollar touched its highest level this year.

The Turkish lira fell 6% over the week, its worst week since 2008. Comments from President Recep Tayyip Erdogan were blamed for the slide after he said he plans an “operation” against ratings agency Moody’s, which is reviewing Turkey’s credit rating for a potential downgrade.