Weekly Market Update


The importance of geopolitics came to the forefront of investor minds last week. The Syria airstrike and the Stockholm terror attack served to shift attention from the two-day presidential meet between Donald Trump and Xi Jinping, with both trade and North Korea’s military programme strongly on the agenda.

President Xi Jinping, one of China’s most respected and powerful leaders of modern times, will be keen to keep up appearances. His top priority will be to prevent a destabilising trade war. With the Communist Party Congress in October this year, the President will also be wary of potential conflicts that could threaten political stability on home turf.

US data was relatively mixed last week with non-farm payrolls undershooting the consensus forecast by a very wide margin, and downwards revisions to January and February’s data. The unemployment rate on the other hand fell to 4.5 per cent, its lowest register since 2007, leaving analysts split on the implications for central bank’s policy.

There were signals from the US Federal Reserve’s that it could change its bond investment policy. Minutes of the Fed’s March meeting showed most policymakers think the US central bank will take steps to begin trimming its $4.5 trillion balance sheet this year as long as the economic data holds up. Unwinding a $4.5tn balance sheet could imply a significant reduction in global liquidity.

Oil prices climbed while investors flocked to safe-haven assets, after the US launched a missile strike on an airbase in Syria in response to recent chemical weapon attacks. While Syria’s oil production remains limited, its location and alliances with big oil producers have raised concerns about an escalation of the conflict disrupting crude shipments.

However, the number of rig counts in the US has risen 85 per cent since the low reached in May 2016, while production is almost back to the levels before OPEC decided to flood the market. Although oil prices have stabilised in the $50-$55 a barrel range since December 2016, US crude oil inventory is only 1 per cent below its all-time high, adding to further downward pricing pressure.

Eurozone unemployment dropped by 140,000 in February, pushing the jobless rate down to 9.5 per cent, the lowest level since May 2009. Factories in the eurozone also enjoyed another strong month, reporting their highest levels of activity since 2011. Economically, there is an improvement within Europe, but this remains overshadowed by the political schedule ahead.

The UK demonstrated positive service sector numbers, while there was less positive data on both manufacturing and construction figures. Elsewhere, the Chancellor was left deflated as the UK-India bilateral investment treaty lapsed last Friday, just days before the British finance minister arrived in New Delhi to secure better terms for the UK. The news highlights the challenges ahead for a post-Brexit UK in securing international trade deals.

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