Equity markets continue to struggle this week as the second quarter of the year finished on Friday. The quarter was a volatile one as trade concerns increasingly dominated equity market sentiment. The modest rally in equity markets on Friday, encouraged by an easing in trade tensions, helped developed indexes recover most of the losses earlier in the week. It was a reasonable quarter for the FTSE 100 assisted by the weakness in the currency. Not including income, the FTSE 100 has marked time for the year, as has the S&P 500. Selling in May and going away has not yet proved a successful strategy.
As much as trade talks have dominated the headlines, this has led to concerns regarding the strength or otherwise of the Chinese economy. Saturday saw the release of June’s Purchasing Manager Survey for the region, the services index modestly beat expectations although the manufacturing index failed modestly to meet. The composite index fell modestly to 54.4 however this remains well above the level that suggests a contracting economy. That may well reassure equity investors at the start of the week. The uncertainty that currently dominates sentiment led to over 20 billion dollars being taken from equity funds in the past week. This would suggest equity sentiment remains far from euphoric.
One observation from a leading article in the Sunday Times, in which it reports on comments from the deputy governor of the Bank of England that he is concerned at the impact a cocktail of risks in the global economy could impact a Brexit bound UK economy. At least it makes a pleasant change not to come from the Governor himself. It would also make a pleasant change if the Bank stopped painting such a negative picture of the UK and global economy.
There may be uncertainties but there are also positives also for investors to look at. US consumer confidence remains robust and the US economy is set to grow over 3% in the second quarter.
This coming week we get the minutes of the last Federal Reserve meeting. Trade war concerns have impacted China sentiment the other concern regards the Federal Reserves desire to raise rates and what impact that might have on economic growth and will they make a “policy mistake”. The minutes are likely to give some further clues as to when the next hike may come.
We mentioned earlier the release of China’s PMI data, as the week progresses we get the same releases for the other major economies. Along with trade war concerns this data is likely to dominate equity sentiment in the coming days.