Our view on the market movements for last week and outlook for week commencing 17 June.
Weekly review & outlook: Tariffs averted and falling production
The risk-off scenario during the month of May abated in the previous week as the abrupt news of tariffs on Mexican imports seems to have been averted for the time being while the Trump’s rhetoric against China also lessened. Barring aside any impromptu tweets from the US president, the next important event in this saga will be at the G20 meeting in Japan at the end of June, upon which he has warned of further tariffs should the Chinese not sit down for talks. Equity markets have also been supported by a raft of weaker economic data with the implications of central bank stimulus. None more important than the US jobs data in the prior week, which showed the US jobs market still in good shape but job creation was far weaker than expected.
The week just gone by has given us more data points suggesting a slowing of the global economy, including Eurozone industrial production and US inflation only rising by 1.8% yoy and giving the Fed plenty of room for manoeuvre. With the UK data releases though, we all have to look at it from a Brexit angle and how it’s impacting the economy. GDP and economic activity figures for the first quarter were surprisingly positive, but were highly skewed by stockpiling activity in the run-up to the last Brexit deadline at the end of March. Now that date has passed, as expected, we are eating into our excess production; the April manufacturing and industrial production figures reversed from March, falling by 3.9% and 2.7% respectively, however these falls were much worse than expected. The April GDP figures got the second quarter off to a bad start, falling by 0.4%, worse than the expected -0.1%, and with Brexit uncertainty persisting, fuelled by a “No-Deal” advocating Boris Johnson leading the Tory leadership race, and global slowdown, some economists are predicting a fall to GDP figures for the second quarter.
Markets: (at the time of writing)
Source: Digital Look
Key UK data events:
The week ahead
While oil prices have fallen off in recent weeks and touched below $60 a barrel off the back of weaker global outlook, on Thursday we saw the biggest one day rise for some time following the alleged attack by Iran on two oil tankers in the Strait of Hormuz. We go into the weekend with heightened tension between Iran and its Middle Eastern neighbours and their US allies, oil prices will be very volatile and react after the weekend should accusations between the parties risk possible flare-ups.
In the coming week, releases of any note from the UK include May’s inflation data (April’s figures were supported by rising utility bills) where price rises are expected to have moderated month on month to just 0.2%, while the year on year figure should comfortably stay within the Bank of England’s 2% target. However, May’s retail sales are expected to show another month of weakness following a relatively flat April (though better than expectations). These releases will come ahead of the Bank of England’s interest rate decision where no change is expected but investors will keenly follow the inflation report and press conference for an assessment of the health of the economy along with Brexit contingency plans. Markets are pricing in a lesser chance of any rate rise in the next year.
The central banks of Japan and the US are also expected to make interest rate decisions during the week, no change is expected from the Japanese but money markets have priced in a dramatic policy turnaround by the Federal Reserve since the start of the year. While we may not get a cut at this meeting, there is an 87% chance of a cut at the July meeting and a near-certainty by the end of the year according to the futures market.
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