Trump claims currency manipulation and retail falls.
Weekly review & outlook: retail falls
With evidence in recent months mounting that the global economy was slowing, it was an opportunity for central banks this week to give their steer on policy rates. The biggest lift for stock markets came at the beginning of the week with Mario Draghi hinting at the possibilities of stimulus coming along. Money markets now expect a cut by the end of the year and this drew the ire of Donald Trump accusing the Europeans of “currency manipulation”. However, he failed to label his own central bank as a currency manipulator for its dovish guidance to the market the next day. The Federal Reserve kept interest rates on hold but there is a high chance of a cut at the July meeting.
In the UK, we had inflation numbers dropping back to the Bank of England’s target rate of 2%, while retail sales figures fell again in May, partly blamed on the weather but highly influenced by the passing of the last Brexit deadline and the consumption of stockpiles created. The Bank of England kept rates on hold but now expects second quarter economic growth to be flat from the previous expectations of +0.2%; reflecting the reduced manufacturing and industrial activity since the end of the last deadline. Interest rate rises seem to have been put off for at least the next year according to the markets; this along with Boris Johnson seemingly unstoppable, therefore raising the chances of a No Deal Brexit and keeping the pound at its weakest level for several months.
Market: (at the time of writing)
Source: Digital Look
Key UK data events
The week ahead
We go into another weekend with the events in the Middle East at the forefront, early this morning it emerged that at the last minute the US pulled out of making a strike against Iran after the latter shot down a US drone. Oil prices have lifted off the recent lows in part due to reduced US oil inventories last week but it is surprising to see oil prices haven’t reacted further to the tensions though developments over the weekend and its implications on shipping lanes in the Straight of Hormuz will be keenly followed by traders.
“There are few economic releases in the UK of any particular note to move markets. We do have the final revision of the Q1 GDP figures which should show no change from the previous estimate of 0.5% growth.
Last week’s equity rally leaves some markets trading again at all-time highs following the recent central bank guidance’s but some investors are expressing caution that valuations are looking stretched and not backed up by fundamentals given the weaker economic outlook. Some point to the bond market yields and higher gold prices for a truer reflection of risk sentiment. This bout of bullishness in the equity market could be pricked by the build-up to the G20 meeting on the 28 and 29 June where the US and China intend sit down for talks to diffuse the tariff and trade war, an out of place tweet by you know who could escalate the rhetoric.
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