Weekly market review and outlook: Indicators of a slowdown

Whilst the services sector sees expansion, elsewhere there are indicators of a slowdown.

Article updated: 5 July 2019 2:00pm Author: Helal Miah

Review

Over the previous weekend, markets were on tenterhooks as to what would happen at the G20 summit, especially with regards to the US-Chinese trade dispute. The meeting of the two leaders ratcheted down the rhetoric with positive signs of further talks in the near future. At the open on Monday global markets breathed a sigh of relief with big gains on risk assets and built on the prior week’s gains induced by dovish central bank comments on mounting evidence of slowing global economic growth.

In the week gone by we received some of the clearest indicators of this slowdown with the co-ordinated release of the forward looking PMI (Purchasing Manager’s Index – a survey of buying intentions from businesses) data from all the key economic regions. The figures from the manufacturing sector which is most at risk from trade and tariff wars, showed the biggest cause for concern with the index falling below 50 (above 50 is an expansion, below 50 is a contraction) for Japan, China, the Eurozone and the UK. Part of the explanation for the UK’s figure which fell to 48 is down to the reduced activity following the stockpiling activity in the first quarter prior to the Brexit leaving date. Amongst the major regions, only the US managed to show any signs of growth although this was modest.

The services sector is in better health with all regions showing expansion, although a slowdown was evident in some regions, the UK services PMI fell from 51 to 50.2 while the construction sector showed a very dramatic fall from 48.6 to 43.1. Brexit again is taking the brunt of the blame as businesses hold off investments until the political environment becomes clearer.
The reshuffle of the top jobs within the EU sees the market welcoming the prospect of Christine Lagarde as the head of the ECB, she is known to be supportive of Mario Draghi’s stance on monetary policy. Meanwhile at the OPEC meeting, major oil producers still seem committed to limiting production. At the end of the week the latest US jobs numbers showed a bounce back on job creation, but maybe not enough to delay the interest rate cut as the unemployment rate did tick up a little.

Markets: (at the time of writing)

Source: Digital Look

Key recent & upcoming events

Source: Factset

We head into the weekend with the US stock market at all-time highs again with the market seemingly expecting Federal Reserve support upon any data set showing weakness. During the upcoming week which is relatively light on major data releases and scheduled geo-political events , we will see the release of the minutes from the last Fed meeting, this should reflect upon the supportive comments to the market individual policy makers have made in recent weeks. June’s inflation rate is expected to come in at 1.7% down from 1.8%, paving the way for the interest rate cut that money markets have all but priced in for the next policy meeting at the end of July.

In the UK, we have the publication of the month on month GDP figures for May suggesting an expansion of 0.5% compared to April’s -0.4%. At the same time we will have the publication of the official production numbers for the Industrial, Services and Manufacturing industries for May too. Like the GDP numbers, the Industrial and Manufacturing segments of the economy should show a bounce during May compared to April where we started to use up our stockpiles. This little bounce for an individual month though will not be interpreted as that the economy is doing fine, as many expect the quarter on quarter GDP figure to not look as rosy.


All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.

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. 

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