Weekly Market Update 2019 07 15

15/07/2019

UK Economy

Data released last Wednesday showed that the UK economy rebounded month-on-month in May from a 0.4% contraction in April. The May figure indicated that the economy grew by 0.3% in the month. Furthermore, the three-month rolling figure came in at 0.3%, reflecting some upward revisions to previous months. Fears of a recession in the second quarter were lowered following the release, and it is now likely that there was flat growth rather than a contraction in the quarter, although we will have to wait for the June figures for confirmation. It has been difficult for economists to interpret the data over the last several months as the stock building before the original March Brexit deadline and subsequent unwinding, as well as global influences, have impacted the figures. Nevertheless, the UK economy continues to perform surprisingly well, given the political backdrop and less than favourable global economic environment.

Tensions with Iran

In retaliation to a seizure of an Iranian oil tanker, the Revolutionary Guard attempted to take a BP vessel passing through the Strait of Hormuz last week. Fortunately, Royal Navy intervention prevented any capture. However, the incident illustrates increasing in tensions in the region, with the Iranian regime becoming more brazen in its actions, having been backed into a corner by US sanctions. Breaches of uranium enrichment levels and tensions with Britain, mean that the Nuclear deal appears unlikely to be salvaged and leaves Iran with little choice but to try and disrupt Western interests. The increasing rate of incidents in this crucial region for oil production and transportation means that the likelihood of potential supply disruption has increased. A spike in oil prices as a result of supply disruption could be the final straw for an already weakening global economy.

Federal Reserve to Cut Rates

Last week, testimony from Fed Chairman Jerome Powell cemented bond markets’ expectations that there will be a US rate cut at the end of the month. Economic data and speculation over committee members intentions left markets deliberating over whether it would be a 0.25% or a 0.5% cut to interest rates. However, jobs data that came in above expectations have led futures markets to price in a more cautionary 0.25% drop in rates. Anything outside of this would now be a significant surprise to markets. Commentators are still split over what the correct course of action is, with some arguing that slowing growth and low inflation warrant aggressive rate cuts and others suggesting that interest rates should be maintained or increased while unemployment remains at historic lows and wage inflation is building.

Market Data

  % 1w* % 1m*
UK -0.62% 2.32%
US 0.39% 4.87%
Europe ex UK -1.14% 3.11%
Japan -0.87% 2.97%
Emerging Markets -1.18% 4.51%
Oil 3.37% 9.83%
Gold 0.49% 5.62%
Prydis

This article was written by Prydis

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