The Weekly Update

There were modest gains in equities last week with the S&P 500 gaining 0.8%, but this small gain signalled not only new highs but closed the week above 3,000 for the first time. With the backdrop centred around trade tensions affecting the global economy and central bank watching, market moves this week encapsulated the recent upside surprise in US employment data from previous week as well as last week’s comments from Fed Chair, Jerome Powell, in-light of this stronger than expected data. Treasuries lost some ground, with 10-year yields gaining 9 basis points over the week to close at 2.12%.

Powell’s semi-annual monetary policy testimony before the House Financial Services Committee continued the dovish tone of his June post-FOMC press conference, noting that “crosscurrents, such as trade tensions and concerns about global growth, have been weighing on economic activity and the outlook”. In particular, this may be depressing business investment which “seems to have slowed notably”. Importantly, Powell’s comments go on to suggest there has been no change in view since the FOMC and following the stronger than expected June non-farm payroll data: “Since then, based on incoming data and other developments, it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the US economic outlook. Inflation pressures remain muted. These comments in conjunction with the FOMC minutes reinforce the case for a rate cut. In the meantime, markets now turn to another corporate earnings season in the weeks ahead leading up to the next FOMC meeting.

A similar dovish tone resonated out of the ECB with the minutes confirming the possibility of a rate cut in the near future. But weak early corporate earnings (notably in discretionary sectors like autos) and the ongoing headwinds of trade tensions with both the US and China, kept the broader European equity market from gains. Alongside profit warnings from the likes of Daimler and BASF was the headline news of the Deutsche Bank restructuring: targeting cost cuts of 25%, with 18,000 job and entire business arms like investment banking and equity sales being terminated. DB, beyond the €288bn of longer-dated leveraged assets to be shifted to a bad bank, faces the broader and more simple problem of poor profitability – an increasing sign of the times.

But the key take-home news from last week was that England won the Cricket World Cup for the first time in an epic “rollercoaster” of an ending “Stoking” up some luck with four overthrows to push them into a super-over shootout which was also tied leading to the England win from hitting more boundaries. Congratulations to our lads in what is being called “the greatest game ever played”.

Looking to the economic calendar for the week ahead: Monday’s focus will be on China’s GDP reading for the second quarter in addition to China’s Retail Sales and Industrial Production, with US Retail Sales and Industrial Production figures out on Tuesday along with Eurozone Trade Balance and German ZEW Economic Sentiment data. On Wednesday we have an assortment of inflation data from the UK, Eurozone and Canada, and the Fed Beige Book and Housing Starts out of the US. Thursday’s economic releases include Australian Unemployment Rate, Japan’s Trade Balance, UK Retail Sales and US Philadelphia Fed Manufacturing Index. On Friday the week closes out with data on Japan’s Consumer Prices, Germany’s Producer Prices, UK’s Public Sector Net Borrowing and Canada’s Retail Sales data.

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