Global Markets Update Monday 30 July 2018

Posted on 30 Jul 2018

Donald Trump and European Commission chief Jean-Claude Juncker announced a "new phase" in EU-US relations. In a joint statement, they agreed to "work together toward zero tariffs, zero non-tariff barriers, and zero subsidies on non-auto industrial goods”.

United Kingdom

The FTSE 100 rose 0.3% over the week.

Theresa May’s blueprint for the UK’s post-Brexit relationship with the EU was rejected, with negotiators claiming that it was not acceptable that the UK would collect taxes on the EU’s behalf.

US

The S&P 500 gained 0.8% over the week.

The US economy grew at an annualised rate of 4.1% in the second quarter, its fastest pace in nearly four years and up from 2.2% in the first quarter. Growth was driven by strong consumer spending and a surge in exports as firms rushed to beat new trade tariffs.

The core personal consumption expenditures price index – the Federal Reserve’s preferred measure of  inflation – rose at an annual rate of 2.0% in the second quarter, down from 2.2% in the first quarter.

Durable goods orders rose by more-than-expected in June, and data for May was also revised higher.

After Netflix’s fall the previous week, the divergence between the popular FAANG stocks continued with social media stocks tumbling. Twitter shares plunged around 20% after it reported a fall in active users. Facebook also dropped 20% in just one day (wiping $120 billion off its market value) when it reported that user growth was expanding at the slowest pace in two years and indicated that revenues would be limited by a new advertising format that gave users more control over privacy. In contrast, Amazon shares rose after it reported record quarterly profits helped by a rise in online sales and demand for its cloud services. Elsewhere, shares in

Alphabet, Google’s parent company, hit an all-time peak after its results beat forecasts.

Qualcomm announced it would not proceed with its proposed $44bn acquisition of Dutch-owned NXP. 

Europe

The Eurofirst 300 rallied 1.7% over the week.

The European Central Bank announced no change to either interest rates or its bond-buying programme, with Mario Draghi giving an upbeat assessment of the economy saying the region was “proceeding along a solid and broad-based growth path” despite the risk of a trade war.

The flash reading of the eurozone composite purchasing managers’ index slid to a two-month low of 54.3 in July. While services fell, manufacturing activity rose slightly. 

The Ifo survey of current German business sentiment improved slightly in July, but expectations of future business conditions declined for the eighth month in a row, touching 98.2 in July compared to 102.7 at the end of 2017.

The IHS Markit German manufacturing purchasing managers’ index rose to 57.3 in July from 55.9 the previous month. This is the first rise in 2017. However, PMI surveys of manufacturing activity in more southern countries were far weaker.

France’s GDP grew 0.2% in the second quarter, the same level of growth seen in the first quarter of the year. 

Spain’s new socialist government was defeated in its plans to raise the government’s 2019 spending cap and ease deficit targets.

Japan

The Nikkei 225 rose 0.1% over the week.

The Nikkei Markit “flash” Japan manufacturing purchasing managers’ index for July fell to 51.6, down from 53 in the previous month and the lowest level in 20 months.

Pacific Basin

China announced a package of tax cuts and infrastructure spending and the People's Bank of China injected the equivalent of $74 billion into China’s banking system through loans to commercial banks. This follows two cuts to banks’ reserve requirement ratios this years and is the latest sign that policymakers are moving to ease monetary policy as the economy slows.

South Korea’s economy grew by 2.9% on a year-on-year basis in the second quarter of the year, in line with expectations.

Emerging Markets

The Turkish lira tumbled after the country’s central bank left interest rates unchanged despite soaring inflation, which hit 15.4% in June.

The Venezuelan government said it will knock five zeros off its currency, the bolívar, in an attempt to tackle rampant inflation, which is estimated to hit 1,000,000% this year.

Bonds

Yields on Japanese government bonds continued to rise amid speculation that the Bank of Japan was considering adjusting its monetary policy stance. During the week, the yield on the 10-year benchmark bond briefly moved above 0.1% for the first time in 18 months, causing the central bank to intervene twice to bring yields back below 0.1%.

Yields on 10-year US and German government bonds rose to five-week highs during the week. The yield on the 10-year US Treasury closed the week at 2.96%, while the 10-year German Bund yield ended at 0.40%.