Markets & Key Events | 17th May 2019

The US China economic trade war dominated markets once again this week, as the Chinese responded in kind to Trump increasing tariffs, by raising tariffs themselves on $60bn worth of US imports.  Markets tumbled sharply on Monday, with technology one of the worst hit sectors, and government bonds rallied.  Markets then bounced on Tuesday, as in a series of Tweets, Trump said “when the time is right we will make a deal with China”, followed by “it will happen, and much faster than people think!”. So as not to draw Europe and Japan into the fray, midway through the week the US announced it was putting proposed auto import tariffs on hold for six months. However, markets fell again on Friday, not helped by the Chinese renminbi, which has weakened by nearly 3% over the past two weeks, heading back towards Rmb 6.70 versus the US dollar, a level that has previously unnerved investors.

Over the week, up to 12pm London time on Friday, the US S&P 500 has fallen 0.2%, whilst the European EuroStoxx 600, benefitting from the delay on auto tariffs, has risen by 0.9%.  The UK’s FTSE All Share rose by 1.5%, benefitting from a sharp depreciation in Sterling, as the currency fell from US dollar $1.30 to $1.275, as expectations rise for Boris Johnson, an advocate of a hard Brexit, to take over the reins from Theresa May who for the last couple of months has been acting in the name of Prime Minister only.  The Japanese Topix index rose 0.3%, and the Australian S&P/ASX 200 rose 0.9%, whilst Emerging Markets fell sharply, losing 2.2%.

Government bonds rallied, with the 10-year US Treasury now yielding 2.38%, UK Gilts 1.01% and German Bunds minus 0.08%.  However, gold is unchanged from the beginning of the week, trading at $1,287 an ounce.

Mixed US economic data overshadowed by trade war concerns

Weak economic data out of the US was largely overshadowed this week by the talk of trade wars.  Retail sales were unexpectedly weak, falling 0.2% for the month of April, following a very strong rise in March.  Industrial production also unexpectedly fell for the third time in the last four months, falling by 0.5% in April.  Furthermore, the closely watched US ISM (Institute for Supply Management) manufacturing index grew at its weakest level for two and half years in April.

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