US President Donald Trump keeps rattling trade markets and keeping investors antsy. Our chief investment officer Julian Chillingworth asks, is he using the markets to pressure the US Federal Reserve to cut interest rates?
Index
1 week
3 months
6 months
1 year
FTSE All-Share
-2.0%
1.1%
7.4%
1.0%
FTSE 100
-1.9%
1.7%
8.2%
2.1%
FTSE 250
-3.0%
-1.4%
4.1%
-3.5%
FTSE SmallCap
-1.4%
-1.9%
3.5%
-3.2%
S&P 500
-0.9%
8.5%
17.9%
13.1%
Euro Stoxx
-2.0%
4.8%
13.2%
1.6%
Topix
1.7%
6.1%
10.1%
0.8%
Shanghai SE
-1.3%
-2.7%
14.8%
9.6%
FTSE Emerging
-1.8%
2.8%
7.6%
6.5%
Source: FE Analytics, data sterling total return to 2 August
Brexit means parity
UK services bounced back in July. The PMI, a mix of confidence surveys and order data, bucked the forecast flat line, rising to a nine-month high of 51.4.
On Friday, the UK’s first estimate of second-quarter GDP is released. This will be accompanied by lots of measures of business investment, household spending and saving and the nation’s balance of exports and imports. The UK’s current account deficit – the amount of exports less imports – is approaching 5% of GDP, the highest of any major economy. The stumbling pound should help boost exports and dissuade imports, but it hasn’t had any significant effect yet.
The closer we get to the Halloween deadline for the UK’s departure from the EU, the flightier sterling markets get. Having a gung-ho Prime Minister leading a hard-line Brexit Cabinet at the helm has given currency traders a perfect excuse to avoid the UK. Since Boris Johnson won the leadership contest on 23 July, sterling has fallen about 2.5% – and that’s not counting the preceding steady slide that accompanied the news that he was due to win in a landslide.
As for the trade-weighted pound (the value of sterling when measured against the currencies of nations we trade with most), the pound is now 15% lower than it was before the referendum. This means the pound in your pocket is almost a fifth less valuable than it was three years ago. The idea that a weaker currency only affects you when you go travelling is false. We import most of our food, whitegoods, gadgets, clothes and general tat from abroad. When the pound slumps, the price of these things is forced upward. But retailers have plenty of techniques for preventing you realising. Packaging shrinks, discounting is tweaked, recipes are amended. And so prices rise ever so slowly without you knowing.
Bad news for you, if you’re employed, as it means you’ve taken a pretty hefty pay cut; good news for your employer, who is paying you in devalued pounds – especially if they are selling goods and services in a foreign currency …
Bonds
UK 10-Year yield @ 0.55%
US 10-Year yield @ 1.85%
Germany 10-Year yield @ -0.50%
Italy 10-Year yield @ 1.54%
Spain 10-Year yield @ 0.24%
Economic data and companies reporting for week commencing 5 August
Monday 5 August
UK: New Car Registrations, Services PMI
US: Services PMI, ISM Non-Manufacturing Services
EU: Services PMI
Interim results: BBA Aviation, Dialight, Senior
Tuesday 6 August
US: JOLTS Job Openings
Interim results: Genel Energy, HSBC Holdings, InterContinental Hotels, IWG, Rolls-Royce Holdings, ICAP
Wednesday 7 August
UK: Halifax House Prices, RICS House Price Balance
US: MBA Mortgage Applications
Interim results: Glencore, Hill & Smith, Legal & General, PageGroup, Phoenix Holdings, Spirax-Sarco, Standard Life Aberdeen, Ultra Electronics
Quarterly update: UDG Healthcare
Thursday 8 August
US: Initial Jobless Claims, Wholesale Trade Sales and Inventories
EU: ECB Economic Bulletin
Final results: Hargreaves Lansdown
Interim results: Arrow Global, Aviva, Coca-Cola HBC, Temple Bar IT, Tritax Big Box Retail
Friday 9 August
UK: GDP (Q2), Private Consumption, Government Spending, Business Investment, Trade Balance
US: PPI
Final results: Hikma Pharmaceuticals, William Hill