After talk/tweets of increased trade tariffs had knocked global markets the previous week, the last five days have proved a much calmer affair as the man from the White House spent the beginning of the week in Winfield House. Spending the first half of his week on an official state visit to the UK, it seemed Donald Trump had no time for controversy as mentions of any trade wars, especially from his infamous Twitter account, were kept to a minimum.
Finally allowing analysts to focus on the fundamentals, markets made back some of the losses endured in May with the positive tone being set as early as Monday morning. Chinese Manufacturing PMI data came in slightly above consensus, showing a growth in the sector at 50.2 (a reading above 50 indicates expansion). The reading matched April’s numbers allowing the Aussie Dollar, often used as a more liquid proxy for China, to hit a two-week high against the US Dollar.
A slowdown for British manufacturing
The good economic news however was not shared here in the UK as a survey showed the Brexit stockpiling boom of early 2019 had given way in May to the steepest slowdown in British manufacturing for almost three years. The real loser of the week was Kier Group, shedding 41% after a profit warning giving rise to growing fears of a dividend cut due to mounting debts. However, despite the gloom, UK stock on the whole remained relatively buoyant after US President Trump praised “the extraordinary” alliance between the UK and US and commented on future trade deals.
US Federal Reserve
The world’s focus was also on the US Federal Reserve this week as investors took an increasingly dovish view that the central bank would now almost certainly move to cut rates to help boost an apparently ailing global economy. Underscoring concerns over global growth was a report showing US private employers added only 27,000 jobs in May, well below forecasts of 185,000. Comments from Jerome Powell and other Fed officials during the week gave cheer to the bond market as they indicated they would act if a recession was on the horizon. Markets are now pricing in a 55% chance that the Federal Reserve will cut rates by at least 75 basis points by the end of the year.
The first Friday of the month also saw US Non-Farm Payrolls shared, the broadest and most watched piece of employment data from the world’s largest economy. The data showed a weaker than expected 75k new jobs created last month, below economists’ forecasts of 185k. However, unemployment remained unchanged at 3.6%, its lowest level since 1969.
The week ahead…
Whilst continental Europe enjoys the coming Monday off in observance of Whit Monday, its business as usual here in the UK; business being the operative word.
Monday sees the twin release of month-on-month GDP numbers and Manufacturing Production levels, which should help to gauge the health of the domestic economy with both pieces of data wide ranging in their uses. With GDP having shown negative growth for April, many economists will be hoping for a bounce back, especially as the turmoil in Westminster and Brussels continues.
Whilst the UK’s economy stalls due to Brexit concerns, across the channel we will see if the UK’s imminent departure has the same effect, as Tuesday sees the survey company Sentix release its investor confidence numbers. The survey will act as a leading indicator for how the European economy is faring as investors and analysts are highly informed by the nature of their jobs. Changes in their sentiment can be an early sign of economic activity. In total, 2,800 investors are asked to give their views on the six month economic outlook for the Eurozone, adding weight with such a comprehensive data set.
Later in the week
The remainder of the week should see attention switch to the US as Wednesday sees inflation statistics released followed by Retail Sales data on Friday. The two sets of numbers are inexplicably linked as rising retail sales usually mean that retailers feel comfortable in raising their prices and increasing staff wages. In turn, this should have a knock-on effect for inflation. This week’s numbers could also be given added importance as many economic commentators have now not only reined in their expectations of a rate rise in the US but are predicting a decent chance of the central bank cutting rates by the end of the year.