Weekly Market Update

11/06/2018

A quiet week by previous standards with trade negotiations between Donald Trump and the G7 allies taking centre stage. Looking ahead Investors will gear up for a historic summit between North Korea and the US, and three key central bank meetings.

Donald Trump called for Russia to be readmitted to the G7 and clashed with his allies on trade as leaders held a summit that highlighted deep rifts between the US and its partners. In the trade discussions Mr Trump reiterated his long-held concerns over the US trade deficit and what he views as unfair treatment of the country. The meeting ended with Donald Trump leaving the summit early and backtracking on a pledge to sign the G7 communique.

The Brazil real plunged to its weakest level in more than two years. Rising US bond yields have hit demand for emerging market assets in general, but Brazilian markets have been particularly hit after several opinion polls and a nationwide truckers’ strike against high diesel prices cast doubt on bets that the winner of this year’s elections will stick to a market-friendly agenda.

Argentina and the International Monetary Fund agreed on a $50 billion stand-by loan in a bid to bolster the country’s public finances and aid to its struggling economy. Their currency the peso has lost approx. 20 per cent of its value against the US dollar, while inflation has rapidly risen to an estimated 25 per cent. The aid package has not been a popular solution by locals as many blame previous IMF imposed measures for prolonging a severe economic crisis in the early 2000s.

Aside from Turkey and Argentina, this year’s elections in Mexico and Brazil have the potential to upset markets, while there is the potential for Russia to be hit with further sanctions. It seems investors will be on the lookout for sources of risk more than in 2017, so the dispersion of returns between markets is likely to be much greater.

There are hopes that the UK rebounded from anaemic growth in the first quarter after service sector data highlighted that growth was running at a three-month high. There was also a slight slowdown in growth in the Eurozone in the first three months of 2018, but the bloc’s economy still grew by 2.4 per cent year-on-year.

US data pointed to an unexpected build in crude and gasoline stockpiles. The surprise build in US inventories has compounded pressures on oil ahead of a meeting between major producers in Vienna set to take place June 22-23, at which an update is expected on a possible output increase later this year. Opec nations may clash over production policy as Saudi Arabia and Russia have signalled they’re ready to increase output to cover lost output due to US sanctions. However, Venezuela and Iran have written to fellow Opec members urging unity against American sanctions.

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