Weekly market review and outlook: Escalating tensions

Earnings and retail sales rise despite economic growth slowdown.

Article updated: 19 July 2019 3:00pm Author: Helal Miah

It’s been a less eventful week by recent standards, with the market finding little impetus to build on their all-time high levels as economic data releases have generally been on the weaker sides. Meanwhile the Federal reserve rate cut at the end of the month and central bank support in general has been priced in. The week started off with poor Q2 GDP numbers from China which saw the economy growth at a mere 6.2%, the slowest since the financial crisis. Donald Trump leapt onto this saying how effective his tariff war was at hurting the Chinese, though there was no mention of how it hurts the Americans too.

In the UK we had some key releases which generally painted a reasonably good picture despite the gloom. The unemployment rate stuck at a lowly 3.8% while the average earnings, including bonus, increased by 3.4% year-on-year. This level of wage increases is good news from a consumer point of view, especially when the latest inflation figures show prices were only rising by 2%, in-line with the Bank of England’s target rate. Retail sales numbers showed that consumers were fairly confident, with month-on-month spending increasing by 1%, easily beating expectations of a 0.3% decline. Economists explained away this dramatic rise saying that a bounce should be no surprise given the weakness in April and May.

Markets: (at the time of writing)

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FTSE 100 7,528.82 +0.30%
FTSE All-Share 4,107.96 +0.32%
Brent Crude $62.92 -5.70%
Gold $1,439.20 +1.91%
GBP/USD 1.2514 -0.46%

Source: Digital Look

The week ahead: 22nd-26th July

As we enter the weekend, issues in the Middle East will be at the forefront of investor’s minds as the US claims to have shot down an Iranian drone, both gold and oil prices reacted to the upside.

There will not be any significant economic data releases out of the UK. Nonetheless, political events will play its part in driving markets as Boris Johnson will more than likely be crowned as the leader of the nation, causing a large number of ministerial resignations, with a Brexit biased cabinet forming. This week the pound reached new lows, last seen in 2017, on rising fears of Boris Johnson’s “do or die” attitude to Brexit, although this was tempered by the latest parliamentary move to block a No Deal scenario.

Outside of the UK, the markets will closely watch the latest Markit PMI figures for the Eurozone and the US, with the Composite figure expected to show a rise in business confidence compared to previous months. The European Central Bank will announce its latest interest rate decision; no change is anticipated but the statement is expected to sound dovish, with economic indicators having generally been weak in recent times.

The US president will no doubt get to boast about what a great job he is doing with the US economy, which releases the preliminary GDP numbers for the second quarter at the end of the week, having been expanding for a record period now. However, both the quarter-on-quarter and the year-on-year figures are expected to show a material slowing of the pace of growth. This slowdown will have been directly impacted by the trade and tariff war with China which he will not allude to.

The latest earnings season gathers momentum next week and there has been increasing talks of an earnings recession on the back of a global slowdown. Should this materialise, more investors will question the level of the stock market and possibly mark the interim highs in the stock market.

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Helal Miah portrait photo
Helal Miah

Investment Research Analyst

After graduating with an economics degree from University College London, Helal started his career within private banking at Smith & Williamson Investment Management and later held analyst and fund manager roles with the Industrial Bank of Japan, Schroders and Mitsubishi Corporation. He is a chartered fellow of the Chartered Institute for Securities & Investment.