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.
Monday morning set the tone for the week as investors looked for any clues as to what might be discussed at the upcoming weekend’s G20 meeting between the two nations. China’s Vice Commerce Minister Wang Shouwen duly obliged by stating that both countries should make compromises in trade talks after negotiations broke down last month. Throughout the week, markets eked out marginal gains as a lack of confrontational rhetoric helped investors gain confidence that an accord may be struck.
Domestic consumer spending to slow?
It was a different story for UK retailers and supermarkets however, after a high street forecast predicted that domestic consumer spending will grow at its slowest pace in six years. Predictably, it was the UK’s supermarkets that were hit hardest with Sainsbury’s shedding 4.2% and M&S, Tesco and Kingfisher all losing around 2.5%. The gloom surrounding the UK’s economy was compounded further on Tuesday as the Confederation of British Businesses released their monthly realised sales data. With a reading of above 0 indicating higher sales volumes, whilst one below meaning a fall, analysts expected numbers to remain around flat. Coming in at -42, it highlighted the work cut out for would-be Prime Ministers Johnson and Hunt as both pledged to help the ailing high street with various cuts to business rates and corporation tax. The data itself is valued as it surveys approximately 125 retail and wholesale companies, acting as a leading indicator of consumer spending levels.
US Federal Reserve
Just as England Cricket fans were forced to taper any expectations of world cup glory, so investors were forced to re-evaluate earlier bets made on a prospective interest rate cut from the US Federal Reserve. With many now predicting a rate cut rather than a hike as the central banks next move, the Fed Chair’s, words came as a bit of shock on Wednesday. The US dollar traced its way higher and whilst European and Emerging Markets indices slipped after Mr. Powell announced the central bank is “insulated from short term political pressure”, inferring that they would not bow to US President Trump’s constant calls to cut rates. Donald Trump had since remarked that Jerome Powell was doing a “bad job” in allowing the US dollar to remain so strong, dampening the attractiveness of US Exports.
Physical gold, one of 2019’s standout performers, having hit a six-year high of $1,415.40, snapped a six-day winning streak as hopes of a rate cut waned. For those who had started to lose interest in cryptocurrencies, Bitcoin attempted to confound its critics, jumping to an 18-month high as investors looked for alternatives amongst geopolitical tension, whilst cheering Facebook’s latest foray into cryptocurrencies which could one day push them into the mainstream.
The week ahead…
While there is the usual plethora of economic data out next week, news-flow from the G20 summit, held in Osaka over the weekend, may be the main driving force of markets as we head into the first week of July.
On top of the G20 summit, investors have Manufacturing PMI data from China, the UK and US to digest on Monday. This economic indicator is compiled from monthly surveys of several private sector companies and will provide insight into the health of the overall manufacturing sector. The manufacturing sector is slowing down across the globe and economists are expecting Monday’s numbers to confirm that this trend is continuing.
We will be receiving two key data points from the Eurozone next week; the unemployment rate and retail sales. While the Eurozone unemployment rate is higher than the US and UK, at 7.6%, it has been moving lower with jobs being added across a broad range of countries. The consumer is a key driver of the bloc’s GDP, and as such it will be a boost to markets to see unemployment move lower, which should feed through into consumer confidence and ultimately consumption. As slack continues to be removed from labour markets we may also see a pick-up in wage growth which could raise inflation from current low levels. We will be provided with insight into the Eurozone consumer on Thursday as retail sales data is released. The report does act as a useful gauge of consumption and consumer confidence.
As is tradition, the first Friday of the new month sees the US report Non-Farm Payrolls data, which is the monthly change in employment excluding the farming sector. While jobs continue to be created, there has been a marked slow-down over recent months and investors will be eager to see if this is simply a blip or the rate of growth in employment is fundamentally slowing. The current US unemployment rate is at 3.6%, a multi-decade low, and this should support consumption within the economy.