Market round-up: 20 – 24 May 2019
Thomas Watts | May 24, 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…
World’s largest economies cause disruption
Similar to trading conditions in 2018, events in both Washington and Westminster took their toll on global markets. Huawei, the Chinese technology conglomerate, found itself at the centre of a growing row this week as a war of words between the US and China threatened to boil over.
Investors dumped stocks during the end of the week, favouring safe-haven bonds, the Japanese Yen and the Swiss Franc, as tensions between the world’s two largest economies dragged on. Just as relief had washed over global markets in the form of a softer tone from Washington against Huawei, further bad news was just around the corner. Reports surfaced on Wednesday that Washington was now looking into placing sanctions on another Chinese tech behemoth, this time video surveillance firm, Hikvision. Fears of further black-listings of Chinese firms has only served to reinforce worries that Washington is no longer interested in sealing a trade deal, instead focusing on a more disruptive desire to curb Beijing’s technological ambitions.
The burgeoning technological cold war rocked world markets on Thursday as a growing rift saw oil drop nearly 5%, with the Eurostoxx 500 losing 1.76% and FTSE Bluechip index shedding 1.41%. Branding Huawei as “very dangerous”, there was some light at the end of the tunnel, however, as the Trump administration said on Thursday evening that the controversial firm could be part of the framework for some kind of deal. President Trump predicted a swift end to the spat with China, although admittedly no new high-level talks have been planned between the two nations in the near future. The relief was palpable as markets began recovering some of the losses inflicted the day before.
May’s time is up
There was no such respite over in Westminster, however, as time was finally called on Theresa May’s turbulent premiership. Friday saw the embattled Prime Minister finally throw the towel in, announcing she will step down on June 7, triggering a leadership contest to decide who will be the next Prime Minister, and who will ultimately take the country out of the EU. Mrs May said she had endeavoured to honour the result of the EU referendum and had ‘done everything’ to convince MPs to back her deal.
“Sadly, I have not been able to do so…. It is now clear to me that it is in the best interest of the UK for a new prime minister to lead that effort.”
In a week that had started so promisingly for May, with the announcement of her “bold” new deal, much like a metaphor for her time in power, any compromise was left in tatters. Offering a sweetener to parliament, including a chance to vote for a second referendum, Theresa May could not break the impasse in Westminster, with many MPs having made up their minds that her deal, much like her tenure, was dead in the water. The final nail in the coffin came in the form of Andrea Leadsom, now former Leader of the Commons, who tendered her resignation on Wednesday saying she could no longer lend support to the government’s Brexit approach. The chaos engulfing Westminster was to sterling’s detriment, with the pound falling as low as $1.26 on Wednesday.
US and UK inflation
In a week that has seen global markets focus almost solely on political events, limited attention had been paid to the latest meeting minutes published by the US Federal Reserve on Wednesday. It appears they remain committed to a “patient” stance on interest rates, a view that could last for the foreseeable future. Despite a noted lack of inflation coming through, their meeting minutes also showed that members raised their expectations for full-year economic growth and said that earlier concerns they had about a slowdown had abated.
On domestic shores, inflation data came in at 2.1%, slightly below consensus forecasts of 2.2%, climbing above the Bank of England’s target of 2%. Rises in energy and transport prices were to blame for a rise in the index, picking up from 1.9% in the previous month.
The week ahead…
European Parliamentary elections
After last week proved something of a rollercoaster for investors, not least in the UK, many will be thankful of some respite in the form of the spring bank holiday. However, with European Parliamentary elections being held on the continent across the weekend, there will be plenty for investment commentators to analyse. With the results due to be announced on Sunday, we could see heightened volatility in currency markets as investors attempt to digest the new formation of the European Parliament and what it means for the bloc as a whole.
Bank of England’s Inflation Report
As the bank holiday finishes, we have the Bank of England’s Inflation Report hearing to look forward to. During such hearings, the Bank’s Governor and several Monetary Policy Committee members will testify on inflation and the outlook for the economy before Parliament’s Treasury Committee. The hearing should last a few hours but will provide vital clues as to the perceived health of the UK economy and the outlook for future rate policy. The hearing should be followed by High Street Lending numbers, detailing the number of new mortgages approved for homes purchased during the last month, which also acts as a gauge towards the overall economy.
Will US GDP improve on last quarter?
Thursday will see most of Europe’s main markets closed in observation of Ascension Day. The 40th day of Easter will, however, provide some important economic data across the pond. With US GDP having missed consensus forecasts for the last quarter, whilst also exhibiting a concerning downward trend, many will be hoping for better data, especially as the US-China trade war appears to be escalating.