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 June 2019.
With Boris Johnson still commanding significant support from his peers in all rounds of voting, the relief was palpable as it appeared the divisions within the Tory party may finally be healing. Currency markets reflected the news best, with sterling climbing back towards $1.27, its highest for a few weeks.
Sterling’s gain was the dollar’s loss as the US Federal Reserve poured fuel on hopes that a rate cut will be on its way before the end of the year. Global stock markets soared on the news, with the S&P 500 hitting record highs towards the end of the week. Conversely, US Treasury Yields fell below 2% as investors digested the news that rates could be cut as soon as the Fed’s next meeting in six weeks. Although Jerome Powell and co left rates unchanged this time, the general tone seems to have been set.
Oil prices also surged, not only lifted by the Fed but also news that Iran had shot down a US military drone, raising fears of military action between Tehran and Washington. US President Trump had approved military strikes in retaliation on Thursday but pulled back from launching any attacks. Brent Oil nonetheless surged 3.5%, pushing past $65 dollars a barrel.
Oil wasn’t the only commodity that enjoyed a strong week, with political tensions ratcheting up and a weakening dollar, safe haven gold advanced to a six-year high of $1,410.78 per ounce.
On domestic shores, inflation numbers showed that prices rose at a steady 2%, bang on the Bank of England’s target. Minutes published on Thursday showed that BoE officials voted unanimously to hold rates where they are despite some recent suggestions that rates should be raised sooner rather than later. The central bank did however cut its forecast for UK economic growth to zero in the second quarter.
Towards the end of the week, investor focus switched to next week’s G20 summit for any hints as to whether the trade rift between the US and China may be addressed. Buoying markets further, the two nations signalled that an extended meeting will be held in order to get negotiations back on track.
The week ahead…
The first full week of British Summertime is predicted to bring a spate of hot weather and clear blue skies as the country is set to bask in wall to wall sunshine. Much like the mercury in the nation’s thermometers, oil prices have also been on the rise of late, with many predicting that next week’s OPEC meeting could cause further appreciation.
Held in Vienna by representatives from the 15 oil-rich nations, they discuss a range of issues regarding energy markets, including supply and demand dynamics and how much they will produce in order to keep prices in check. OPEC’s meetings are often closed to the media, but officials will usually converse with the press as the meetings progress. A formal statement covering policy shifts and meeting objectives is released after the meetings have concluded. The meetings hold a lot of influence over energy markets as OPEC nations represent around 40% of the world’s oil supply and are unified in their production levels. Shifts in the cartel’s output usually have a large impact on prices and may take on an added impact with many worrying that the political crisis between the US and Iran could also cut oil production.
In what will be a quiet week on the economic data front, Thursday will see US GDP released. Having cooled off in recent months, the broadest measurement of economic activity has disappointed in recent months, coming in under analysts’ forecasts for the last two readings. With the US-China trade war continuing to grind on, many will be hoping that the ongoing effects have not damaged growth as much as feared.
Markets could well tread water for the majority of the week as Friday sees the latest G20 meeting, a summit in which many are pinning their hopes that China and the US can finally start to set aside their differences. G20 meetings are attended by finance ministers and central bankers from the 20 largest industrialised nations, including the G7 nations – Canada, Italy, France, Germany, Japan, the UK, and the US. Much Like the OPEC conference in Vienna, the meetings are closed to the press, but officials usually talk with reporters throughout the day. Many commentators will be focusing on how the US and China are getting on and we should expect increased volatility, especially in currency markets as news of their meeting trickles through to investors.