INSIGHTS

Duncan Donald

Mon, Jul 15


KYLIN TALK | Weekly Markets Update 15.07.19

It was a slow week in Brexit developments as Conservative party members registered their votes on the new party and government leader. With Boris Johnson still thought to be in a dominant position, he is beginning to map his path for immediate progress within his role, believing the primary objective being a trade deal with the US. Mr Johnson believes once that is attained other similar deals will fall into place, however, he would do well to look at how other nations trade negotiations have progressed this year, already its alleged that the US expects the UK to “fall in line” with the US in the handling of Chinese tech firm Huawei.

There is traction growing as MP’s are pushing to set a legal precedent to block the shutting of parliament by the new Prime Minister in order to neutralise the vote rights and force through a no deal Brexit should it come to it.

 


As expected, UK GDP returned to positive, coming in at 0.3% in May and up from -0.4% in April. Whilst on the face of it this shows good progress, serious questions remain of the UK economy's ability to deal with a global trade slowdown and Brexit without slipping into recession. We now remain in little doubt that interest rates in the UK are not going up until at the earliest the second half of 2020 and that’s only if we see a positive Brexit, with that eventuality looking ominous at this time, there is indeed more justifiable reasoning for potential cuts from 0.75% to 0.25%, should Boris press ahead with his policy of a hard Brexit on the 31st October.


We heard from 2 members of the UK’s Bank of England Monetary Policy Committee last week Vlieghe and Tenreyro who both spoke of the fact that there would be a notable period before inflationary pressures would be at the level to justify the tightening of interest rates.


We do have a very interesting week for UK data this week which will give a significant idea of the UK’s pre-Brexit health, with labour data on Tuesday, Retail Sales on Thursday and most significantly, Inflation data on Wednesday.


In the US it was a contentious week for President Trump. He has been on a campaign to bring his central bank into line on interest rate policy. Federal Reserve Chairman Jerome Powell spoke in Congress on Tuesday confirming that the Fed will likely make a “corrective” cut at July’s meeting appeasing the President. There were thoughts we could see a stall to assess the recent return to firmness in the Labor market could kick start the economy, but Powell highlighted global trade tensions as the weighing factor on global and his domestic market. As a result of the dovishness from Powell, stocks enjoyed a record-breaking week with the S&P scaling all-time highs above 3000 where it remains and the Dow Jones index pushing to the 24,000 level.

 


Over the weekend the main news events came from Donald Trump falling into further controversy following accusations of racism, after telling Democratic party lawmakers to “return to the broken and crime infested places from which they came from”. These thoughtless remarks will undoubtedly put further pressure on the President and cast doubt over his success in next years elections.


This morning data showed that growth in China slowed to the lowest level since 1992 as the trade negotiations take effect on the economy. Despite the slowdown, the positives remain that growth still exists, and it was notable that a strong end to the quarter was seen which has subsequently kept stocks strong into the open.


It was a tough weekend for Cryptocurrencies and in particular, Bitcoin after Donald Trump was quoted as saying he was not a fan of the sector and those investing in it were putting their money into thin air.

 

The week ahead:

Monday - China’s GDP came out at 6.2% in line with estimates but as mentioned above signals showed that economic growth was slowing. A very quiet European session with no notable data. In the US session, we get Empire state manufacturing and FOMC member Williams speaking. Late in the day, New Zealand delivers Inflation data.


Tuesday - First up we get the minutes of the recent Australian Interest rate decision. In the European session, we get the German and European Economic sentiment data and UK Average earnings data. In the US session, we get a glimpse of the US Retail sales sector where a slight contraction from 0.5% to 0.1% is expected. In the evening we hear again from Jerome Powell and fellow FOMC committee member Evans.


Wednesday - First up is UK inflation data with CPI and PPI data followed by Eurozone inflation data at 10am. There is extensive Canadian data in the early US session with CPI and Manufacturing data as well as US Building permits and housing starts.


Thursday - Australian Employment data is first up with Employment and Unemployment data. UK retail sales comes at 9.30am which is expected to show a slightly more positive negative with -0.3% forecast against the -0.5% seen last month. In the afternoon we get the philly fed Manufacturing data before FOMC member Williams speaks in the evening.


Friday - From the UK we get Public Sector Net Borrowing which is forecast to show a retraction to 3.4bln from 4.5bln. In the American session, we get Canadian Retail sales as well as the University of Michigan Consumer Sentiment and Inflation Expectation data. As the week draws to a close, we hear from FOMC members Bullard and Rosengren.

 


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