Weekly Market Review

05/06/2017

A positive week for markets even with the political challenges sweeping the headlines. Many major indices touched record highs during the week, while political risk escalated. Donald Trump hit the headlines with his recent withdrawal of the Paris climate change pact, while the UK conservative party continued to lose its majority within the polls.

Donald Trump’s controversial decision to pull out of the Paris climate accord took centre stage, with both entrepreneur Elon Musk and Disney boss Robert Iger immediately resigning from President Trump’s business advisory panel. Trump believed he was fulfilling his America First policy, stating that the agreement was detrimental to American workers and needed to be revised. The reality is that the US did not have to withdraw from the Paris agreement to renegotiate how it will participate. In fact, once it withdraws, it legally cannot renegotiate the terms of its participation.

The United States is responsible for 14% of global carbon emissions. Trump’s actions have thrown the accord’s targeted reductions into doubt, prompting a backlash from senior officials in China and the European Union.

The US witnessed weaker than expected payroll numbers last month. However, a slowdown in growth is to be expected as the economy reaches full employment. Consumer spending grew at its quickest pace of the year in April, suggesting the world’s biggest economy was shrugging off political turmoil.

The Oil price fell below $50 a barrel and was down 6 per cent over the course of the week, less than one week after OPEC and Russia agreed to extend production cuts until 2018. At the same time, US oil production has grown faster than many analysts in the market predicted. Many expect US oil production to rise further before the year end keeping prices muted.

Global manufacturing rose for the fifty-fifth successive month, although the rate of expansion in the sector eased to a six-month low in May. Developed nations tended to outperform emerging markets in May, while growth across emerging nations slowed to a pace only marginally above the stagnation mark. The Developed Markets PMI continued to signal solid and steady expansion. Rates of improvement strengthened in the euro area (six-year high) and Japan (three-month high).

Brazil’s economy emerged from its worst recession on record, announcing its fastest growth rate in nearly four years, with GDP growing 1.0 percent in the first quarter, after eight consecutive quarters of contraction. However, even with positive reforms, the jobless rate remains high and the gap between the rich and poor is vast.

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