Weekly Market Update

25/06/2018

Politicians came under pressure on both sides of the Atlantic this week. In the UK, Prime Minister Theresa May faced an uncomfortable vote on Parliamentary approval of the final Brexit deal. A last-minute compromise prevented a rebellion within Mrs May’s Conservative Party.

President Trump threatened to impose further tariffs unless China agreed to withdraw its tit-for-tat measures. Most global indices fell in response, with particular weakness in Chinese markets. Overall, emerging markets were generally weak, as investors absorbed the implications of the tensions between the two nations and the potential for the US dollar to strengthen further this year. There’s still a good chance this is just more Trump rhetoric and not a situation that will spiral out of control, which explains why we’re seeing buying on any dips in equity markets.

China exports over $500 billion of goods to the US, but conversely, the US exports $150 billion to China, so Trump’s view is that the US can win this battle as it has less to lose. But China still has other options that could hurt the US. Devaluing the currency would be the most obvious move to give them competitive export strength. We are now moving into a trade-war with Trump positioning himself for the US mid-terms in November.

The Bank of England held interest rates following a string of weak data, although three MPC members voted to hike rates including BoE chief economist Andy Haldane. This is the first time Haldane has not voted with the majority since he joined the MPC in June 2014. The MPC is keeping its options open for an interest rate hike in August but it would be no surprise if this ended up being shelved as well. While the jobs market is buoyant, there seems to be little upward pressure on wages and inflation.

Greece struck a deal with Eurozone authorities to ease its repayment obligations. The pact significantly reduces the country’s financing needs over the next decade and thus increases its chances of being able to return to the market on a regular basis in the coming years.

OPEC concluded their formal meeting on Friday, with an agreement, in practice, to raise production by around 0.6m barrels a day. This is another logical step from OPEC towards rebalancing the market and sustaining an oil price that satisfies their own economics needs as well as balancing the supply and demand outlook and incentivising investment in long term projects.

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