Weekly Market Update

08/05/2018

Investors digested news that US President Donald Trump agreed to give the EU, Canada, Mexico, and other allies another 30-day reprieve from new steel and aluminium tariffs. The exemptions will now last until 1 June, giving the US and the exempted nations more time to work out deals.

GDP in the Eurozone rose 0.4 per cent quarter-on-quarter in the first three months of 2018. The preliminary growth figures confirmed the earlier signals from weaker business surveys, suggesting that output growth in manufacturing, retailing and services was slowing. Mario Draghi, European Central Bank president, highlighted that the bank would watch the data in the months ahead with caution. However, policymakers remained optimistic that the region’s economy would stay strong enough to support a rise in inflation closer to the ECB’s goal of 2 per cent. Data for the start of the second quarter have so far been mixed, while sentiment has been challenged over fears surrounding Brexit, a higher euro and trade wars.

The US Federal Reserve held interest rates steady and acknowledged rising inflation but did not seem overly concerned that prices would rise too fast. US job creation figures continued at a moderate pace while wage growth was more subdued than forecasted. The unemployment rate fell to 3.9 per cent, from 4.1 per cent in March. The central bank still expects growth to continue at a moderate pace and labour market conditions to remain strong even though household spending growth has slowed. The markets now expect the central bank to increase rates in June.

Argentina’s central bank stunned markets by raising its key borrowing rate to 40 per cent, intensifying its efforts to defend the peso as emerging market currencies were hit by waves of selling. Policymakers had sought to bolster the peso, already having spent $5bn of foreign exchange reserves. Argentina is experiencing acute selling pressures and capital flight from higher US interest rates and a resurgent dollar.

In corporate news, Apple launched a $100bn share buyback plan and lifted its dividend by 16 per cent, marking the biggest increase yet in its capital return to shareholders. Revenues for the three months to March grew by 16 per cent year on year to $61.1bn. It sold 52.2m iPhones in the quarter, up 3 per cent on a year ago.

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