Market overview – Richard Carter, Head of Fixed Interest Research
The European Union has struck the biggest trade deal so far with the US, signalling more positive news on the international trade front. A baseline 15% tariff will be applied to European goods, with the EU agreeing to buy US$750bn of energy products and invest an additional US$600bn in the US. European stocks responded positively on Monday morning, rising 1% to hit a four-month high with US stock futures also up.
The EU is the largest regional trading partner with America, with over US$5bn worth of goods and services exchanged every day. Details are yet to be confirmed but it is believed that the US’s global steel and aluminium tariffs, currently 50%, will remain unchanged.
There has been swift progress on the US trade front in recent weeks as the 1 August deadline approaches, with a number of deals announced. The US and Japan reached an agreement for a so-called reciprocal 15% tariff that will see Japan invest US$550bn in the US. The US will receive 90% of profits from the investments. The treatment of Japanese cars was a key point of contention in negotiations and the tariffs on autos will be lowered to 15% from the current 25%. Separate agreements have also been made with Vietnam facing a baseline tariff level of 20% and the Philippines and Indonesia subject to a 19% rate.
Weekly economic announcements:
Last week the MSCI All Country World Index rose 1.4% (13.2% YTD).
United States:
US stocks marginally outperformed last week, rising 1.5% (9.4% YTD). The gains meant a second week in a row of new all-time highs for the benchmark. Growth stocks underperformed value stocks and small caps lagged large caps. Tech-based indices gained, albeit at a slower pace (1.0%, 9.7% YTD) to also hit new record highs. A positive news flow with regards to trade deals lifted markets.
United Kingdom:
UK equities closely tracked global peers last week, rising 1.4% (14.0% YTD). Mid-cap indices added 1.1% (9.5% YTD). The latest retail sales data disappointed despite the warm weather in June, showing a 0.9% monthly increase compared to consensus forecasts for 1.2%.
The pound closed the week near where it started it against the US dollar at US$1.34. The 10-year gilt yield declined 4 basis points (0.04%) to end a fairly subdued week at 4.63%.
Europe ex UK:
The MSCI Europe ex UK index edged up 0.5% last week (11.0% YTD). German stocks dipped 0.3% (+21.6% YTD) while French benchmarks gained 0.2% (9.3% YTD) and Italian bourses rose 1.4% (23.6% YTD). The single currency ended the week at US$1.17.
The European Central Bank kept its main policy rates unchanged following its latest meeting, with the deposit facility rate at 2%. Following eight cuts in just over a year the decision to pause was widely anticipated.
