Global Markets Update Monday 25 June 2018

Posted on 25 Jun 2018

Donald Trump threatened another $200bn in tariffs on imports from China and targeted European car makers too.

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United Kingdom

The FTSE 100 rose 0.6% over the week.

The Bank of England kept interest rates but signalled an August rate rise is more likely than previously thought as Andrew Haldane, the Bank's chief economist, joined two other Monetary Policy Committee members in voting to raise rates to 0.75%.

Siemens and Airbus were among companies that warned the UK government of the risks if a no-deal Brexit and of the problems caused by the lack of progress in negotiations.

US

The S&P 500 slid 0.4% over the week.

The June Philadelphia Fed’s manufacturing index fell to its lowest point since late 2016.

Walt Disney raised its offer for the assets of Twenty-First Century Fox that it does not already own to $38 a share; Comcast has offered $35 a share.

Europe

The Eurofirst 300 fell 1.0% over the week.

Shares of European carmakers tumbled after Donald Trump tweeted that the US would place a 20% import tax on European cars, if the EU's "tariffs and barriers are not broken down soon and removed".

Eurozone countries have agreed a long-awaited debt relief deal for Greece which gives Athens more time to repay almost €100bn of loans and extends the period during which Greece will pay little or no interest. Under the deal, eurozone governments are also giving Greece a final cash loan of €15bn to help it keep paying its bills.

Mario Draghi reinforced his dovish message on the European Central Bank’s retreat from ultra-loose monetary policy, saying interest rates would only rise at a slow pace from September next year. The president of the Bundesbank backed the ECB’s commitment to keep interest rates at their current record lows “at least through the summer of 2019”.

The eurozone composite purchasing managers’ index rose for the first time in five months in June as a rebound for services offset a further decline in manufacturing activity.

The IHS Markit purchasing managers’ index of German manufacturing activity slipped to a one-and-a-half year low of 55.9 in June, down from 56.9 in May. However, measures of service sector activity rose to a three-month high of 53.9, compared to 52.1 in May, helping the overall composite index tick up to 54.2 from 53.4.

The final reading of French GDP growth over the first quarter of the year was revised down to 0.2% amid sluggish household spending and falling exports.

Italian equities and sovereign bonds fell sharply after two staunchly Eurosceptic lawmakers from the far-right League were tapped to lead key Italian parliamentary committees that deal with economic policy.

Japan

The Nikkei 225 lost 1.5% over the week.

The flash estimate of the Nikkei manufacturing purchasing managers’ index rose to 53.1 in June, up from 52.8 in May.

Headline inflation picked up pace to 0.7% year on year in May, up slightly from the 0.6% rate recorded in April and ending two months of deceleration. But core-core inflation, excluding both fresh food and fuel and energy prices, slowed further from the 0.4% rate seen in April to just 0.3% in May and the weakest pace of price growth since December.

Pacific Basin

Chinese shares ended the week around 4% lower, with the Shanghai Composite having touched a two-year low earlier in the week amid fears of a global trade war.

Emerging Markets

The Bank of Mexico raised its key interest rate by 25 basis points to a nine-year high of 7.75% to help defend the weakness in the peso and prevent a further uptick in inflation. In contrast, Brazil’s central bank held its interest rate at a record low of 6.5% and warned that monetary policy would not be used to control currency movements. Brazilian inflation spiked to 2.86% in May and are predicted to rise further in June after a nationwide truckers’ strike, but inflation is still near 20-year lows and the economy is running at under capacity.

Bonds

The 10-year US Treasury yield ended the week at 2.90% while the 10-year German Bund yield closed at 0.33%.

Commodities

Oil prices rallied, with Brent crude reaching $75 a barrel, after Opec and its allies agreed to increase oil production by up to 1m barrels a day – the increase in production was lower than had been expected.