Global Markets Update Monday 23 July 2018

Posted on 23 Jul 2018

Donald Trump and Vladimir Putin met in Helsinki. The US president came in for widespread criticism at home when he refused to condemn Russian state interference in the 2016 US election identified by US intelligence services. Upon returning to the US, he was forced to claim he ‘mis-spoke’ during the press conference in Helsinki.

Japan and the EU signed the world’s largest bilateral trade pact. The deal creates a trade zone covering about a third of global GDP. The agreement must be approved by the European and Japanese parliaments before it can pass into law. Meanwhile the IMF warned that tariffs could reduce global growth by 0.5% by 2020.

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United Kingdom

The FTSE 100 rose 0.2% over the week.

Theresa May’s plan for Brexit received a cool response from negotiators in Brussels. The prime minister was forced to make concessions to both Leavers and Remainers, and narrowly survived a vote which would have kept the UK in the EU customs union if no deal was reached by March 2019. Both the UK and EU appear to be stepping up preparations for a No-Deal Brexit.

UK retail sales fell by 0.5% in June, confounding forecasts of a 0.2% rise. While the World Cup and hot weather helped food and drink sales, they also kept shoppers away from high streets.

UK inflation remained at 2.4% for the third month in a row in June, lower than the 2.6% rise that many analysts had expected.

US

The S&P 500 gained 0.2% over the week.

Donald Trump indicated he was ready to intensify his trade war with China by slapping tariffs on all $500bn of imports from the country. He also said that he was "not happy" about the fact that the US Federal Reserve is raising interest rates and expressed unhappiness with

the strength of the US dollar against the euro and the renminbi.

In contrast, in his semi-annual testimony to Congress, Fed chair Jay Powell gave a bullish assessment of the US economic outlook and signalled that interest rates would continue to rise gradually “for now”. However, he also warned that rising trade tensions could hit growth if they resulted in higher tariffs over the longer term

Comcast abandoned its pursuit of 21st Century Fox's film and television assets, leaving the field clear for Walt Disney, as it said it would focus its efforts on pursuing Sky.

Shares of Netflix plunged after subscriber growth stalled, disappointing expectations.

Europe

The Eurofirst 300 increased by 0.2% over the week.

Rising oil prices caused German producer prices to increase 3.0% on a year-on-year basis in June, the fastest rate in nine months.

Spain’s new socialist prime minister Pedro Sánchez promised to raise tax on companies and increase public spending.

Japan

The Nikkei 225 rose 0.4% over the week.

Reports that the Bank of Japan was considering adjusting its bond yield target and QE programme caused global bond yields to rise.

Headline consumer prices rose 0.8% compared to a year earlier, while “core-core” inflation, which strips out food and energy prices, was up 0.2% on a year-on-year basis.

Pacific Basin

China’s GDP grew 6.7% in the second quarter, its slowest pace of expansion since 2016 due to slower industrial growth and caution from export manufacturers due to the Beijing-Washington trade war. In addition, the Chinese government is undertaking a deleveraging campaign as it attempts to tackle excessive credit and debt risk.

Hong Kong equities touched a 10-month low.

Emerging Markets

Indian equities continue to outperform other emerging markets. The country is seen as a safe-haven destination, with trade wars having little impact on the country’s macro picture.

Bonds

The yield on the 10-year US Treasury bond closed the week at 2.89%, while the yield on the two-year note closed at 2.60%.

The yield on the 10-year German Bund closed the week at 0.37%.

Altice France issued a $3bn junk bond, its first such sale since concerns around the cable group’s debt pile spooked investors at the end of last year.

Currencies

Sterling dropped below $1.30 as weak retail sales and flat inflation were seen to reduce the chance of an interest rate rise in August.

The Chinese renminbi touched its lowest level against the US dollar since June 2017.