Investments

Market round-up: 15 - 19 July 2019

Thomas Watts

After a weekend which saw England clinch the ICC Cricket World Cup for the first time, in the most dramatic of fashions, going to a one off “super over” after a tied game, it was do or die for England’s players having started the tournament as the bookmakers favourites. Although bringing cheer to the nation, sometimes such a scenario can bring little relief.

 

The information in this blog or any response to comments 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 July 2019.

Brexit

Take the current favourite for the nation’s top job, Boris Johnson, whose comments this week pulled sterling down to the 1.24 mark against the dollar as investors fled the pound on worries of a disorderly Brexit. The Conservative frontrunner made it clear this week that the UK would be leaving the EU, “Do or die, come what may”, by the 31 October deadline, taking a shot at his predecessor’s attempts to leave the bloc. Sterling was condemned to its lowest level in over two years after Boris Johnson and his Conservative rival, Jeremy Hunt, seemed to vie with each other to take the tougher stance on Brexit. Sterling’s falls were compounded after both candidates said that even significant concessions from the EU on the Irish backstop would not be enough. Meanwhile GBP/USD implied volatility for the domestic currency, a gauge of how much the exchange rate is expected to gyrate, is also on the up.

Economic data

There was some good news for the UK however, in the form of strong retail sales numbers. Coming in at 1% versus analysts’ expectations of a 0.3% contraction when compared to May, the numbers came as something of surprise. Non-food sales were the largest contributor, with online sales comprising 18.9% of all sales, down from 19.3% over the last quarter.

Despite the good news, global stocks wobbled throughout the week as US earnings season got into full swing. With a sluggish start, Netflix was perhaps the most high-profile casualty, reporting a poor set of results. It seems the company’s subscription price hikes may finally be catching up with them, posting significantly weaker than expected new subscriber numbers. Reporting that it only added 2.7 million subscribers during the second quarter, undershooting its guidance of 5 million, with its share price in turn losing over 10%.

Weak corporate earnings, Sino-US trade wars and poor economic data pushed Treasury yields lower, moving towards 2% and also allowing gold prices to remain near the $1,400 mark.

The week ahead…

UK new Prime Minster to be named

The coming week sees the UK get a new Prime Minister on Tuesday, as either Boris Johnson or Jeremy Hunt will get the chance to put their Brexit plan into action. Whilst political commentators will have their gaze fixed firmly on Westminster, economists will be focusing more on events across the channel as a raft of PMI numbers on the continent are released.

PMI data

The two largest economies in the Eurozone, Germany and France, will release PMI data for both their Services and Manufacturing sectors. PMI data is vitally important when gauging the health of an economy and with the data being released together, it should deliver economists a useful snapshot. With a reading of over 50 indicating industry expansion, and under 50 contraction, the data acts as a leading indicator of economic health as businesses naturally react quickly to market conditions, with their purchasing managers hold perhaps the most current and relevant insight into the company’s view of the economy. The survey itself asks around 300 purchasing managers to rate the relative level of business conditions including employment, production, new orders, prices and supplier deliveries.

American markets

Towards the end of the week, data from the US should take centre stage as American Core Durable Goods Orders numbers come in. Measuring the total number of new orders placed with manufacturers for durable goods, we should get a good feel for manufacturing activity in the world’s largest economy. The data should be made even more pertinent due to the ongoing trade battle between the US and China; it will be interesting to see if factory orders start to drop off.