Market round-up: 6 – 10 May 2019
Andrew Triggs | May 10, 2019
The information in this blog or any response to comments should not be regarded as financial advice. If you are unsure of any of the terminology used you should seek financial advice. Remember that the value of investments can go down as well as up, and could be worth less than what was paid in. The information is based on our understanding in May 2019.
The week that was…
“For 10 months, China has been paying Tariffs to the USA of 25% on 50 Billion Dollars of High Tech, and 10% on 200 Billion Dollars of other goods. These payments are partially responsible for our great economic results. The 10% will go up to 25% on Friday. 325 Billion Dollars……of additional goods sent to us by China remain untaxed, but will be shortly, at a rate of 25%. The Tariffs paid to the USA have had little impact on product cost, mostly borne by China. The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!”
It was only 102 words long, but Donald Trump’s tweet managed to erase nearly $1.4 trillion from global stock markets this week, a staggering $13 billion per word. The US President’s sudden threat to increase tariffs on all Chinese imports was a move that completely wrongfooted many commentators during their bank holiday Monday, shocking global markets in the process.
Risks surrounding US-China trade disputes had faded from investors’ radars during the beginning of 2019 as various accounts from Washington and Beijing indicated that discussions were progressing well. However, Donald Trump’s latest outburst has now raised the question over whether 2019’s bull market can continue, providing many investors with an excuse to crystallise any significant gains made during the first quarter.
Unsurprisingly, Chinese stocks bore the brunt of investor panic during the week, with the China benchmark CSI300 falling 5.8% on Monday, its biggest one-day fall since February 2016. Most major global bourses were also dragged down, with markets suffering in the US, UK and across Europe. There was some respite however, as Portuguese, Irish and Spanish bond yields all hit historic lows as Portugal saw strong demand at a government debt auction on Wednesday. Italian yields carried on their struggle however, rising on reported tensions felt within Rome’s ruling coalition.
Friday saw President Trump’s threats become a reality as the US followed through with its pledge. However, it was not all doom and gloom as markets took solace from China’s appeals to meet it half way in order to salvage a deal, with talks between the two nations set to continue late into Friday. The US President said on Thursday evening that he had received a “beautiful letter” from his opposite number, Xi Jinping, asking to work together to “get something done.” The news was enough to allow markets to start to recoup a fraction of the losses they had endured during the week.
The week finished on a high on domestic shores as the UK economy continued its recovery. Domestic GDP, the broadest measure of economic activity, is estimated to have increased by 0.5% from the last quarter. UK GDP increased by 1.8% YOY over the first quarter of 2019, an improvement over the 1.4% in the equivalent period in 2018.
The week ahead…
After the fireworks of last week, many commentators will be hoping that Donald Trump’s Twitter account remains dormant as investors attempt to assess the potential damage on the global economy of Washington’s newly imposed tariffs on Chinese goods.
With the spectre of an escalating trade war now firmly back at the forefront of investors’ minds, many will be hoping that markets return to concentrating on the fundamentals as a raft of economic data is released in the coming week. The first meaningful set of numbers should arrive on Tuesday and will focus on the UK as the Office for National Statistics publishes Average Earnings Data. Measuring the buying power of the UK consumer, the data will allow us to see just how much spare cash we have in our pockets, adjusted for inflation. With various green shoots starting to appear in the UK economy, a potential increase in consumer spending could be just the pick-me-up the economy needs before Brexit negotiations are due to resume.
The middle of the week will see the spotlight shift to the US as Retail Sales will likely grab the headlines. However, alongside the announcement, the smaller pieces of economic data could also make for fascinating reading. The strength of the US housing market has been infamous since the Global Financial Crisis and so many will be looking towards both Housing Market Index numbers and Mortgage Delinquencies data. Although generally viewed as a lagging indicator, mortgage delinquencies matter as they act as a signal of the housing market’s health as they are correlated with home inventories. Lower inventories should in theory spur housebuilders to start new constructions.
For years, low inflation has dogged the European economy, with years of ultra-low rates even failing to lift prices. The end of the week will see if inflation has started to manifest at all with CPI numbers being released. Inflation has slowly started to recover and with the European Central Bank potentially looking to raise rates before the end of the year, the numbers should take on added significance.