Weekly Market Update

02/07/2018

With Trump picking fights on multiple fronts and no sides showing any willingness to back down, we may have to get used to this risk averse environment, especially as we move through the classic summer period where liquidity naturally reduces. However, markets have a tendency to look through these events over time and gradually become less sensitive to the rants and reactions of those involved.

The strengthening US dollar, tightening monetary policy and widening geopolitical risks have shaped the winners and losers in investors’ portfolios in the first half of 2018. As markets mark the halfway point of 2018, big tech groups, oil and small US companies have proved the standout successes for investors since the start of the year, while eurozone periphery sovereign debt, emerging market currencies, and Chinese stocks have all performed poorly. Investors appear to be selling cyclical investment plays such as banks, emerging markets, and European equities, in favour of defensive sectors and US equities.

China’s Shanghai index fell into bear market territory over the week, underlining the pressure that escalating trade tensions and a slowing economy are exerting on the country’s biggest companies. The worsening relations have unnerved investors in Chinese companies because the country’s vast factory sector is heavily reliant on trade and counts America as a key partner. This prompted a cut in the reserve requirement ratio for large commercial banks.

UK first quarter GDP growth was revised up to 0.2 per cent from its initial reading of 0.1 per cent, although this reflected the changes in the method of measuring construction output rather than an improvement in conditions. Meanwhile, the Bank of England’s latest survey of business conditions revealed that retail sales picked up in the second quarter but demand for consumer services was held back by squeezed incomes and political uncertainty.

Finally, BP appeared to look beyond petroleum after revealing it will buy Britain’s largest electric vehicle charging firm Chargemaster. It plans to use its technology to roll out ultra-fast chargers across its 1,200 petrol stations in the country over the next 12 months. BP reckons there will be 12 million electric vehicles on Britain’s roads by 2040, up from around 135,000 in 2017.

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