Weekly Market Update 2019 07 01

01/07/2019

Leaders Gather for G20 Meeting

World leaders met in Osaka last week for the G20 summit. All eyes were on the key area of tension, the US-China trade dispute. The G20 meeting had been billeted as a potential point of reconciliation as the two leaders, Trump and Xi meet face to face. Furthermore, investors were encouraged recently when Steven Mnuchin, US Treasury Secretary, suggested that they were “90% of the way” there on a deal and there was a “pathway complete to this”. Over the weekend, Trump did not disappoint investors with his announcement that the US was ready to put a new impetus behind trade negotiations with China and “pause” any escalation. On Monday morning, this provided a boost to global equities and a corresponding selloff in haven assets such as gold.

UK Fiscal Loosening Likely

With the race for the future Conservative Party leader down to the final two, it is a near certainty that the winner will look to loosen the government purse strings. Both Johnson and Hunt have pledged tax cuts and increased spending to boost economic growth and win supporters. While many policies have been floated, including cuts to income tax, corporation tax, stamp duty and increases in education spending, the choice of Chancellor and cabinet may lead to some evolution or temperance of those policies. With the potential for flat or negative economic growth in Q2, an increase in government spending and tax cuts would be a welcome boost. The healthier position of government finances means that there should be no problem in funding such fiscal loosening.

US Consumer Confidence Weakens

The Conference Board consumer confidence index fell to a near two year low in June, with a larger than expected decline. This is the first sign that recent economic weakness is now impacting consumer behaviour. Nevertheless, both the current conditions and expectations indices were indicating that consumption growth would come in at 4.0%. However, the results disappointed forecasters who were expecting sentiment to hold up on the back of the recent drop in fuel prices and equity market strength. Consumers have become increasingly concerned about the trade tensions with China and the potential deterioration in the labour market. With those reporting that jobs are plentiful falling to a one year low, there are concerns that the long run of robust job creation is due to come to an end.

Market Data

  % 1w % 1m
UK 0.33 3.97
US -0.53 5.97
Europe 0.44 6.36
Japan 0.25 2.74
Emerging Markets 0.14 5.21
Oil 0.24 5.15
Gold -0.53 6.97
Prydis

This article was written by Prydis

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