Market round-up 10 - 14 June 2019

Andrew Triggs

In a reversal of the themes experienced during recent weeks, political risks finally started to abate in both Washington and Westminster as analysts were finally allowed to focus on the economic fundamentals driving the world’s largest economies.

Talk turned to trade tariffs

Markets started the week on a sounder footing after news emerged that the US had shelved plans to impose the import tariffs they had threatened Mexico with at the end of May. Easing fears that the US would now happily instigate a trade war on two fronts, risk assets were in vogue as US Treasury prices fell. The US dollar also traced its way higher but the real winner was the Mexican Peso, enjoying its biggest one day rise since June 2018. The deal between Mexico and the US also buoyed the wider Emerging Markets sector, allowing the benchmark to jump 1.5%. With the dispute with Mexico seemingly a flash in the pan, investors will now look towards whether the long running dispute with China over trade can now be resolved.

However, nothing is taken as a certainty with Trump; unnervingly the US president said on Monday that he was ready to impose another round of tariffs if they do not reach a trade deal at the Group of 20 (G20) summit later this month. The euphoria markets felt at the beginning of the week soon dissipated as Trump later remarked that he had no interest in moving ahead with any negotiations unless Beijing agreed on four or five “major points”, none of which he specified.

On domestic shores

Whilst three Tories are now out of the running for the big job at Number 10, the overall UK labour market continues to look strong. Figures out this week showed the UK’s employment rate was estimated at 76.1%, higher than last year and the joint highest on record. Unemployment also remained impressive, sitting at 3.8%. For reference, it has not been this low since October 1974. Average weekly earnings also increased by a healthy 3.1%, beating consensus forecasts of a rise of 2.9%. Earnings numbers are vitally important when gauging the health of an economy as they act as a leading indicator for inflation. When the consumer has more money in their pocket, more often than not, they tend to spend it, in turn driving up prices as demand increases.

Commodity markets

For those watching the commodity markets this week, the last five days have proven to be a volatile period for oil. Black gold prices rose on Thursday after attacks on two oil tankers off the coast of Iran were reported. The US military released video footage on Friday which it said shows Iranian special forces removing an unexploded mine from the side of the damaged Norwegian oil tanker. Iran “categorically” rejected the allegations. US crude settled up 2.2% at $52.28 a barrel.

The week ahead…

Housing inflation

The start of the coming week should allow us to gauge just how robust the UK economy has been as the hunt for a new Prime Minister continues. With the media focusing on who will be moving into Number 10, economists will be studying Rightmove’s HPI data during the beginning of the week. The numbers represent the UK’s earliest report on housing inflation but usually only produces a mild reaction as buying and selling prices are not always correlated. However, their data still acts as a leading indicator as to the state of the UK’s housing market as rising house prices attract investors and often spurs industry activity.

Rising house prices are often a major contributor to inflation and it is with some poignancy that Monday sees the Governor of the Bank of England, along with the Monetary Policy Committee (MPC) testify on inflation before Parliament’s Treasury Committee. MPC members vote on where the nation’s interest rates are headed and so their words have a profound impact on financial markets. During such public engagements, the central bank will often drop hints and clues about what their next move will be.

“Super Thursday”

Addresses from central bankers will form the backbone of the coming week as Mark Carney and the Bank of England will also oversee “super Thursday” towards the end of the week, a positive jamboree of all things economic data. During the festivities, the Bank of England will give its official view on the outlook for the domestic economy as well as publishing minutes from its last committee meeting, detailing which member voted to maintain rates and those who wished to move them. The whole affair should have a large impact in domestic markets, especially on sterling, as currency traders express their views on the chances of a future rate rise.

Our own banks word’s will be complimented by the Bank of Japan’s on the same day and perhaps more importantly the US Federal Reserve. With the US central bank having made such an apparent U-turn during the start of 2019, many commentators are now expecting a rate cut rather than a rate rise to be announced this week. Even if we don’t see the Federal Reserve cut rates, with the minutes from their last meeting also published, we can see how close they may have come.

The information in this blog should not be regarded as financial advice. If you are unsure of any of the terminology used you should seek financial advice. Remember that the value of investments can go down as well as up, and could be worth less than what was paid in. The information is based on our understanding in June 2019