Chief Investment Strategist
Market Update, Alan McIntosh
Global equity markets ended on a downbeat note last week as the trade wars took on a fresh twist. Donald Trump threatened Mexico with a series of escalating tariffs in response to the “migration” crisis at the border. Coming on top of a deterioration in relations between the US and China, markets did not receive this news well. With Europe and potentially India on Trump’s radar screen, the endeavour to “make America great again” seems to be at the expense of everyone else. The month of May was therefore a pretty miserable one for shares, with global equities falling around 6%. Sterling investors were cushioned to an extent by a 3% fall in the pound.
We are in a quiet period for company news as we enter the early summer months. This leaves share prices more subject to bigger picture influences and overall sentiment. The key question is what impact the current trade tariffs and threats of more are having on real economic activity. There are specific industries that are affected e.g. automotive and semiconductor, but does this percolate more generally into consumer behaviour? At present, there is very little sign of the latter, hence the modest reaction by equity markets as events unfold. Even in Brexit-torn UK, employment levels are high and wages are rising. As ever, the fundamentals matter more than the jawboning of politicians.
Economic Update, Richard Carter
Donald Trump looks like receiving a pretty frosty welcome in the UK this week while investors have also given a big thumbs-down to his threat to impose tariffs on Mexico over immigration. Hopefully it will turn out to be more Presidential bluster and the Mexicans are sending a delegation to Washington this week to try and resolve the problem. However, it is worrying because Mexico is arguably as important a trading partner to the US as China and is a key part of the supply chain for the auto industry. It had also looked like North American trade frictions had been resolved with the USMCA deal so these developments are very unwelcome.
We are yet to see a significant weakening in the economic data as a result of the tension but bond markets are not waiting for the evidence to emerge. US Treasury yields have fallen sharply in recent days and a US interest rate cut this year is now fully discounted with the outside chance of a second, although the Fed is unlikely to rush given the strength of the jobs market. Recent economic data has been soft but not dramatically so: both the UK and Chinese manufacturing PMI fell below the 50 level but US consumer confidence remains resilient. This week’s data, including the ISM, services PMIs and nonfarm payrolls, will be eagerly awaited.
Lastly, the Tories Got Talent leadership contest continues to gather steam with 13 declared runners so far. Gove and Johnson are the current favourites and it is not surprising to see a number of candidates make hard-line statements about leaving the EU on the 31st October come what may because they know this is what the membership wants to hear. We may find out this week how the contest is going to be run as speed is of the essence.
Investors should remember that the value of investments, and the income from them, can go down as well as up. You may not recover what you invest. This commentary has been produced for information purposes only and isn’t intended to constitute financial advice; investments referred to may not be suitable for all recipients. Any mention of a specific security should not be interpreted as a solicitation to buy or sell a specific security.