Weekly Market Update


Hopes that the trade war was nearing some sort of resolution and some positive economic data from China helped the positive tone last week. The US and China are continuing to edge closer to the trade deal, with most of the key issues now resolved.

Given the headlines over recent weeks, arguably a trade deal should already be priced into markets; what may be more interesting is what President Trump chooses to turn his attention to next. He has spoken recently of closing the border with Mexico, highlighting once again the national security emergency of illegal immigration. Any closure of this border would have significant supply chain repercussions in the US manufacturing sector and weigh heavily on growth. Equally painful for manufacturing elsewhere would be the talk of US tariffs on auto exports from Europe and Asia.

Regarding Brexit, last Monday saw another round of indicative votes in Parliament but once again none of the options achieved a Parliamentary majority. Tuesday resulted in Theresa May announcing her intention to seek a further delay to the exit date and to take a cross-party approach to find a solution. Meanwhile, European Council President Donald Tusk proposed to offer the UK a 12-month flexible extension to its Brexit date. All this appears to point to a softer Brexit given the prime minister’s initial offer to work with Jeremy Corbyn to end the impasse.

On the data front, the UK services sector, which accounts for 80 per cent of the UK economy, unexpectedly shrank for the first time in almost three years last month. There was also gloomy data from Germany. Factory orders in Europe’s largest economy posted their biggest annual plunge in a decade in February, as it struggles to cope with heightened trade war and Brexit uncertainty. However, there was some positive data in Germany with industrial production in the country halting its run of declines, calming fears of a slowdown.

US job numbers were relatively strong. However, beneath the headline there were some cautionary numbers to report. The labour force participation rate was down, and manufacturing employment declined for the first time since July 2017. Overall though the US is on solid footing. The growth rate might slow from the middle of last year, but strong job numbers should continue to support things like consumer spending, reducing the chances of a recession anytime soon.

Chinese equities hit a one-year high following a surprise recovery in China’s factory data suggesting that the stimulus that has been taking place over recent months is starting to feed through into the economy. The March PMI reading took China back into expansion territory after three consecutive months of PMI contraction. It’s important not to read too much into a single data point but it certainly led to strong returns from Asian markets last week.

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