Weekly Market Update

10/09/2018

Investors kept a watchful eye on trade talks between the US and Canada and any developments in terms of relations with China. Nerves surrounding global trade, and emerging markets turbulence saw most markets end the week in negative territory.

US wages rose at their quickest pace in nine years in August, supporting the dollar and adding further pressure on emerging market economies. US fundamentals remain robust with the economy likely to grow more than 3 per cent again in 3Q18, fuelling the Fed to keep hiking interest rates with another move in September and a further increase in December.

German industrial orders fell unexpectedly in July on weak foreign demand, in a further sign that factories in Europe’s largest economy are feeling the bite of US President Donald Trump’s protectionist trade policies. In contrast, economic activity in the US manufacturing sector hit its highest level since May 2004.

The recent sell-off in emerging market equities continued last week. South Africa, Russia, Mexico, China and Indonesia have all suffered, and the broader MSCI Emerging Markets Index has fallen by almost a fifth since its 2018 high point back in January. Emerging market currencies have also been affected. While Argentina and Turkey have hit the headlines as the value of their currencies has slumped over the past few weeks, the anxieties are spreading to countries with current account deficits such as South Africa and India.

There were some signs of stabilisation towards the end of the week though, with the Turkish lira and Argentine peso staging a measure of recovery. Argentina’s economy minister Nicolas Dujovne sounded upbeat about clinching a new deal with the International Monetary Fund after two days of talks in Washington and stated he had sought US support for securing approval from the IMF’s board.

Sterling temporary moved ahead mid-week following reports that the UK and Germany had made progress on Brexit discussions. News agency Bloomberg reported that Germany was prepared to accept a less detailed agreement on the UK’s future economic and trade ties with the EU in order to get a deal done. `The European Union’s chief negotiator, Michel Barnier, also said that he was open to the idea of simplifying checks on the Irish border, which has proved a sticking point in the talks.

Amazon this week became the world’s second $1 trillion company by market capitalisation, having been pipped to the post by iPhone-maker Apple last month. After an extraordinary surge which has seen the price of its shares more than double in 12 months, Amazon has found its way into the trillionaire club from its humble beginnings back in 1994 as an online bookseller.

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