Our view on the market movements for last week and outlook for week commencing 1st July.
Weekly review and outlook: Tariffs threats return with G20 ahead
The dovish central bank stance from the prior week left some equity markets trading at all-time highs. With little significant macro-economic releases in the week just gone by, there were no real drivers for the markets in either direction with volatility being fairly low. Oil and gold prices did continue to climb though off the back of geo-political tensions that haven’t abated. There are increasing numbers of economists and analysts questioning valuations in the stock market and whether there is really a need for central bank’s dovish stance given debt levels on balance sheets.
The markets have really just been gearing up for the G20 meeting in Japan with the hope that the Americans and Chinese can sit down and thrash out a deal. During the week though, this was given a little knock as the Chinese set out pre-conditions including the removal of the block on American companies trading with Huawei. Meanwhile, Trump continued to threaten more tariffs on China and started new twitter rants against India and Japan.
In the UK the focus has mostly fallen on the Conservative leadership battle and the remaining two contender’s Brexit strategies. We had the finalised figures for Q1 GDP growth which came out at 1.8%, a number which on the face of it looks pleasing, but in the context of the high levels of stock building activity in the run-up to the last Brexit deadline in March suggests that Q2 will be far from looking so rosy.
Markets: (at the time of writing)
Source: Digital Look
Key UK data events:
The week ahead
At the start of next week the markets will be taking stock of what just happened over the weekend in Japan at the G20. Given the rally in equity markets during June, there is some expectation of progress being made between the US and China regarding trade, but both sides also seem intent on playing hardball and not wanting to feel outdone by the other. A lack of progress therefore could see Trump laying on more tariffs that he’s been threatening, so the market should brace itself.
As the week progresses we will see June PMI releases from major economies, most of the manufacturing PMI’s are expected to be flat or show further drops in confidence by purchasing managers. Both the Chinese and US manufacturing PMIs will be keenly followed as a sign of the impact of the trade and tariff standoff. The UK June Manufacturing PMI is expected to show another fall at 49.8, once again likely to be a reflection of the lull in activity after the stock building period during the first quarter, but the services PMI should still show that the larger services sector is still leading the UK economy forward.
The highlight of the week will be the US jobs numbers at the end of the week, 160,000 new jobs are expected to have been created, a bounce from the previous month’s 75,000 which fell short of expectations. If we have another month of failed expectations then a July interest rate cut is all-but certain.
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