Weekly Report

26.08.2019
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Last week was once again dominated by trade related news flow as tensions between US and China escalated.

Investors’ attention was also focused on the US Fed’s annual summit at Jackson Hole.

Markets

  • Global equity markets commenced the week on a positive note amid optimism on the US-China trade front after the US commerce secretary, Wilbur Ross, revealed the Trump administration would extend a temporary license for companies to sell to Chinese telecoms equipment maker Huawei for a further 90 days.
  • Chinese equities also experienced some much-needed reprieve early in the week as protests in Hong Kong ended peacefully, while the PBoC announced steps to lower borrowing costs for companies given the high level of defaults recorded this year.
  • However, as the week progressed trade tensions escalated once again, sending equity markets lower such that Wall Street’s primary equity indices ended in the red for a fourth consecutive week.
  • China announced that it would apply additional levies of between 5% and 10% on $75bn of US imports in two batches, effective from 1 September and 15 December. The move, although expected, led to an immediate retaliation by President Trump which included a demand that American companies seek ‘an alternative’ to manufacturing their goods in China.
  • Stocks across retail, autos and shipping weakened although it was the technology sector that was worst hit.
  • The new Chinese tariffs were announced ahead of the highly anticipated speech by US Federal Reserve chairman, Jay Powell. In his address, Powell focused on the impact of the trade war on the business outlook, and emphasised that the US bank has little ability to influence trade negotiations.
  • Much to the dismay of some investors, the Fed chair gave no indication of any plans to cut US interest rates further, which prompted Trump to irrationally take to Twitter and comment ‘As usual, the Fed did nothing!’.
  • Political tensions also escalated between Japan and South Korea after the latter announced the cancellation of an intelligence-sharing deal between the two nations, designed to share information on the threat posed by North Korea and its missile and nuclear activities. Defence stocks gained following the news.
  • The G7 leaders, including Prime Minister Boris Johnson, met in France for their annual summit. Earlier in the week, officials in Ireland and Brussels had rejected the UK PM’s demand to renegotiate the Brexit deal.
  • Italian assets were back in focus after Prime Minister Giuseppe Conte announced his resignation, escalating the country’s political crisis after months of government squabbling. The move sparks a search for a new administration to avoid snap elections and deal with a faltering economy. President Sergio Mattarella has given the Five Star and Democratic parties until Wednesday this week to form a new coalition government or face elections in October.

Economics

  • It was a relatively quiet week for economic data releases, except for the latest batch of Purchasing Managers Indices.
  • The latest reading on US manufacturing did little to soothe concerns over the outlook for global growth, as IHS Markit’s PMI edged below the expansionary threshold of 50 and signaled contraction in the sector for the first time in almost a decade.
  • In Europe, there were further signs that the region’s economy is slowing causing optimism to grow that the ECB will embark on further policy easing.
  • The IHS Markit composite PMI for the eurozone rose marginally in August to 51.8 and was slightly ahead of expectations. The small pickup in activity was a result of resilience in the services sector in both France and Germany, helping to offset the woes of the German manufacturing sector, which continues to suffer from global trade tensions and weakening growth. The German IHS Markit manufacturing PMI rose marginally in August to 43.6 but remains well beneath the expansionary territory of 50.
  • Flash PMI’s from Japan indicated that its manufacturing sector contracted for a fourth consecutive month in August, while services activity picked up. Manufacturing output and new orders declined at a slower rate in August while export orders recorded a stronger fall.
  • Japanese headline CPI grew 0.5% in the year to the end of July and was just shy of expectations for a 2% increase but remains well below the 2% target. Core CPI, which excludes food and energy, rose by 0.6% over the same period and as expected was unchanged from the previous month.
  • In the UK, property website Rightmove showed that house sales in August were boosted by a pre-Brexit buying spree, as house sales rose at a rate of 6.1% in the year to end of July.

The Week Ahead

Monday-
Tuesday-
Wednesday-
ThursdayUS GDP
FridayEurope CPI; Europe unemployment rate; US PCE; Japan unemployment rate

Index Data

Stock Markets Aug 23 Aug 16 % Change
FTSE 100 7095 7117 -0.31%
FTSE All Share 3899 3894 0.13%
S&P 500 2867 2887 -0.69%
Nasdaq Composite 7811 7890 -1.00%
Dow Jones Industrial 25784 25866 -0.32%
FTSE Eurofirst 300 1459 1456 0.23%
Xetra Dax 11612 11563 0.42%
Nikkei 20711 20419 1.43%
MSCI Asia ex Jap $ 606 602 0.66%
MSCI EM $ 976 964 1.26%
MSCI World $ 2132 2083 2.34%
Bond Yields Aug 23 Aug 16 Bps Change
UK Gov 10 yr 0.51 0.47 4
US Gov 10 yr 1.52 1.54 -2
German Gov 10 yr -0.66 -0.72 6
Japan Gov 10 yr -0.24 -0.24 0
Commodities Aug 23 Aug 16 % Change
Brent Crude ($/bbl) 58.63 58.64 -0.02%
Gold ($/oz) 1502.05 1515.65 -0.90%
Copper ($/lb) 2.53 2.59 -2.32%
Currencies Aug 23 Aug 16 % Change
$ per £ 1.227 1.214 1.07%
€ per £ 1.105 1.094 1.01%
¥ per $ 105.955 106.385 -0.40%

Source: FE Analytics, Financial Times, JP Morgan Asset Management

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