An eventful week began with Donald Trump failing to agree on the G7 accord, followed with two of the three world’s largest central banks discussing further monetary tightening policies and ended with the American president announcing 50bn dollars’ worth of tariffs on Chinese goods. The final event of the week the Chinese authorities claiming Trump had started a trade war.
For a large part of the week, both bond and equity markets took these potential banana skins in their stride. The S&P 500 finished the week almost where it started it. As John Authors points out in Saturday’s Financial Times, despite all the uncertainty the Vix index, otherwise known as the markets fear gauge, hardly moved in the week. Gold, the worlds teddy bear, had its largest fall of the Trump presidency on Friday, and bond yields remain higher than where they were at the start of the year. Uncertain times can often be reflected first in smaller capitalised companies, the Russell 2000 index was largely unchanged as well on Friday and remained up on the week.
This does not mean to say markets will not digest and react in the coming week, but at present, it seems convinced that central banks are still being careful not to choke growth. Either that or the economic growth around the globe is robust enough to withstand more US interest rate rises. Along with that Donald Trump’s bark has generally been worse than his bite, and for this reason, a trade war with China will not be the eventual outcome.
We heard from three of the worlds main central banks this past week, this coming week it is the turn of the Bank of England. Considering the current economic backdrop and the news this week that so far, the recent rise in the oil price has not impacted UK inflation as the year on year rate remained steady at 2.4% in May. This means it is highly unlikely that the Monetary Policy Committee will look to raise interest when they meet on Thursday.
The other event of the week will be the flash Purchasing Manager Surveys for the month of June. Alongside this will be Eurozone consumer confidence. All this may be overshadowed by how sentiment trends towards the further escalation of trade war concerns.