Weekly Market Update

23/07/2018

There was a cautious feel to global markets as investors weighed hopeful signs from the earnings season against trade disputes between the US and China. In the UK, the political scene gathered pace providing testing times for Theresa May’s leadership, and her control of the Brexit process. The latest of which has seen EU policymakers rejecting the UK’s negotiating position on the governance of UK financial services firms’ access to European markets.

Sterling experienced another leg down due to a combination of surprisingly weak retail sales, soft inflation data and the ongoing negotiations around Brexit. Investors now doubt whether the Bank of England will be able to raise rates on 2 August, as previously expected. This prompted traders to offload sterling.

Globally, there was some positive news, after US Federal Reserve Chair Jay Powell delivered an upbeat assessment about the health of the world’s largest economy. This helped counteract weakness in energy stocks, some disappointing earnings results, notably Netflix, and another round of frustrating US and China trade talks.

However, US President Donald Trump launched a rare attack on the US’s central bankers, indicating that he wasn’t happy with their plans to raise US interest rates. Trump claimed that the Federal Reserve risked undermining all his good work strengthening the economy. Higher borrowing costs would drive up the dollar, especially as other central banks are keeping policy loose.

It is no secret that Trump does not like a strong dollar or a Federal Reserve intent on raising interest rates. However, the former looks set to extend its rally given the robust pace of US growth versus the rest of the world. Add to this mix, escalating trade tensions, and commodities flagging weaker demand, then further risk aversion among investors will also benefit the dollar.

In company news, Amazon became the second company ever to cross the $900bn market cap milestone last week. Apple’s market cap is currently about $935bn, with the two companies apparently locked in a battle to see which business will be the first company to hit the $1 trillion milestone.

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