Stocks globally moved higher for a third week in a row helped by easing trade fears, and additional central bank stimulus in the Eurozone. Similarly, global trade tensions thawed this week ahead of the US-China trade talks next month. Earlier on Wednesday Beijing decided to exempt 16 types of US products from Chinese tariffs, and in return the US administration made a “goodwill” gesture, announcing that the original date for the increase of tariffs on $250bn worth of Chinese goods would be pushed back two weeks to coincide with the 70th anniversary of the founding of the People’s Republic of China.
US president, Donald Trump, has since suggested he would consider an “interim deal”, with the suggestion of reducing or even removing tariffs. This news particularly helped Asian stocks, with the Hong Kong stock index up 2.01% for the week, whilst the Japanese export sensitive market rallied strongly 4.73% as of 12pm London time. Elsewhere the US market finished higher by 1.04%.
As of 12pm London time, in Europe, the UK market rose 0.91% whilst Eurozone stocks ended the period up 1.02%, helped by further monetary policy easing from the European Central Bank (ECB). With the Eurozone struggling for growth, the central bank announced a greater than expected stimulus package, as it revived its asset purchasing programme to buy €20bn worth of bonds each month. The ECB also cut its deposit rate further into negative territory to -0.50% in an effort to encourage further bank lending. The Bank have thus far stated no end date to their asset purchases, unless inflation has converged significantly to its 2% target. Mario Draghi, president of the ECB, was also keen to point out that governments needed to take action and provide support to the economy through fiscal policy, for example, infrastructure spending or tax cuts.
In other news, the UK has been gripped by further political turmoil, as this week Prime Minister Johnson faced further parliamentary hurdles as he seeks to take the UK out of Europe by the 31st October. MP Hilary Benn’s no-deal bill, which requires the government to ask for a three-month extension if a deal is not in place by 19 October has now passed into law. Furthermore, mid-week parliament was officially suspended or “prorogued”, with parliament due to return in 5 weeks. However, Scotland’s highest court on Wednesday ruled that Boris Johnson’s suspension of parliament was “motivated by the improper purpose of stymying parliament” and thus unlawful. The government has since appealed the decision and the matter has been put to the Supreme Court on Tuesday. Overall, markets have been pricing the outcome of no-deal lower, and consequently Sterling has rallied to a two-month high breaking through $1.24.
Meanwhile, the improvement in investor sentiment diminished the demand for safe-haven assets, as core government bonds sold off. US 10-year treasury yields, which move inversely to their price, rose sharply by 24 basis points over the week, whilst equivalent 10-year German bunds and UK Gilts rose 15 and 22 basis points respectively.
In commodities, oil prices posted weekly losses. Brent crude oil declined 1.93% to $60 per barrel on continued worries about weakening demand and on speculation that the US administration may ease sanctions on Iran after the former national security adviser John Bolton, an Iran hawk, left the White House.
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