Weekly Market Update 2019 05 13


US-China Trade War Tensions

Donald Trump followed through on his threat last week and increased tariffs on Chinese imports into the US. Tariffs were raised from 10% to 25% on $200bn of goods with the threat of more to follow. This now means that close to half of all goods imported from China will incur a tariff of 25%. As expected, China has signalled that it will implement countermeasures. The flare-up in tensions has led to a sell-off in global equity markets as investors who believed that a compromise would be reached are now not so sure. Negotiations are ongoing, and both sides will be keen to secure a deal; however, the risk of miscalculation and escalation are high.

Lira Sells Off

The Turkish Lira sell-off accelerated last week taking the currency’s total depreciation against the dollar to nearly 20% since the end of January. Concerns were triggered when President Erdogan signalled that the country was going to re-run the Istanbul Mayoral election following his party’s defeat. Most observers believe that the justification of a re-run based on tampering by organised crime, and voting irregularities are excuses for Erdogan to increase his grip on power. Both domestic and international players are now sellers of Lira, and although the central bank has looked to act to stem the outflow and tame inflation, the pressure to keep interest rates low may mean it will be too little too late. Following many years of stellar growth, the country is now in a deep recession, and it will take time to unwind the imbalances built up in the system.

Steady UK GDP Growth

The Office for National Statistics reported last week that the UK economy grew by 0.5% in the first quarter of the year, with the year on year growth coming in at 1.8%. The steady growth in the first quarter is an increase from 0.2% posted in the final quarter of 2018. Furthermore, in contrast to much of last year, the manufacturing and construction sectors were strong contributors to growth although some of this was attributed to stockpiling by manufacturers ahead of a now postponed Brexit date. However, the most promising data was the rebound in business investment, which had been struggling. Business investment increased 0.5% in the first quarter, ahead of expectations of -0.6% and bouncing back from the -0.9% posted in the final quarter last year.

Market Data

IndexOpenCloseChange% Change
FTSE 10073807203-177-2.40%
S&P 50029322881-51-1.74%
Cac 4054835327-156-2.85%
Nikkei 2252225821344-914-4.11%
UK 10 Year Gilt Yield1.221.13-0.09-7.38%

This article was written by Prydis

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