Market round-up 5 - 9 August 2019

Thomas Watts

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 August 2019.


This week

This week saw football fans across the land rejoice as the new Premier League season begins once more. For economists however, events between the two global superpowers of China and the US had already kicked off again on Monday. Fuelling a now long-running trade war, China retaliated to Donald Trump’s proposed tariffs from the previous week by allowing their currency, the yuan, to slide on Monday, falling past the 7 per dollar level for the first time in more than a decade. As an extra negative kicker, Chinese authorities said they would stop buying American agricultural products.

Global stock markets

As any football fan will tell you, a strong defence is paramount for countering periods of uncertainty and unsurprisingly, it was haven assets that traced their way higher throughout the week with the Japanese Yen, Swiss Franc, government bonds and gold all rallying as the US later branded China a currency manipulator. Global stock market losses were led by the US on Monday as the S&P500 and the NASDAQ lost 2.9% and 3.4% respectively. European bourses could not escape the carnage as the Eurostoxx closed down 2.3%. Factoring in the heavy losses also felt on Friday, Europe endured its heaviest two-day decline in three years.

Markets stabilised as the week wore on as Donald Trump attempted to play down the prospects that any trade dispute could be drawn out. China also did its part, with the country’s central government taking steps to maintain their currency’s slide, with the yuan strengthening during the following days.

Economic data

Towards the end of the week, stronger than expected economic data in China bolstered a somewhat tentative recovery as better than expected export data from the world’s second largest economy gave some cause for cheer. Investors were encouraged by data released on Thursday showing that Chinese exports rose 3.3% in July from a year earlier, confounding predictions of a 2% fall. It was a golden goal earlier in the week for the yellow metal as it reached the $1,500 mark for the first time since 2013, however, as investor confidence returned, gold lost its shine to trade at $1,495 an ounce.

Deep into extra time, the end of the week saw UK GDP released, the broadest indicator of economic activity. Sterling briefly fell below $1.21 as domestic growth continued to stutter. Data showed the UK economy shrank by 0.2% against analysts’ forecasts of stagnation. A contraction of 0.2% marks the economy’s worst performance since 2012, meaning that if GDP falls again next quarter, the UK will be in a technical recession.

The week Ahead

With the news that the Royal Mint produced no new 1p or 2p coins for the first time in decades last year, the days of wage packets being full of physical cash looks to be a distant memory. It’s all change as they say.

Although receiving one’s wages may be very different today, the importance of Average Earnings data remains. Tuesday morning sees the latest set of data released from the Office for National Statistics on the back of a run of very encouraging growth over the previous months. With wage growth far outstripping inflation, rising wages have been one of the brightest spots of what has been a beleaguered domestic economy during the course of 2019. The data itself will detail the change in the price both businesses and the government pay for labour and includes bonuses. It acts as a leading economic indicator, especially for inflation as the more employees earn, the more likely they are to spend.

Inflation will be under the microscope come the middle of the week as data detailing price rises in the US will be made public. With consistently strong employment numbers coming through, many economists have been confounded by the lack of inflation manifesting in the US with the US Central Bank even choosing to cut rates a few weeks ago in order to spur consumer spending.

While the end of the week sees a quieter period in Europe, with French and Italian bourses closed in observance of Assumption Day, markets in both the UK and US will be reacting to their respective retail sales data. Heavily correlated with the aforementioned earnings index data, retail sales measure the total change in the amount sold on the high street on a monthly basis. Consumer spending is at the heart of economic activity and with several high-profile retail bankruptcies either side of the pond, the data could, to coin a term, set the tone for the second half of the week.