Wall Street, despite the trade war concerns, notched up its fifth consecutive week of gains as earnings and economic growth continue to support equity prices. The recent rise in Apple shares as it became the first company to be valued at over 1 trillion dollars helping push US indexes higher. A roller coaster of a week for the FTSE 100 after the Bank of England decided to raise interest rates, possibly gaining support from continued weakness in the pound against the US dollar. The pound continues to be impacted by Brexit headlines on concerns that we are heading for a no deal Brexit. As much as the Europeans don’t want to be seen to weaken in their resolve towards negotiations with the UK, it can’t be in there interests any more than ours to not find a solution. Ultimately a deal will be done, it’s just a question of what sort of deal?
There was also action in the bond market as yields rose, the 10-year US treasury once again getting close to but failing to break through the 3% mark. Italian bond prices fell again over tensions within the Italian Government regarding budget plans. A Reuters article quoted one Milan based trader, who believed Italian two-year bonds yielding over one pct was a great opportunity. One would suggest US two-year treasury’s yielding 2.5% was a far more attractive option. Possibly again highlighting that whilst bond yields in Europe remain where they are, it is hard to see yields rise much further across the pond.
The Vix index fell on the week, back to just above 11 suggesting at present equity investors feel confident the growth and earnings story will not be too disrupted by trade wars. The oil price may also have suffered because of trade war concerns, Brent crude a few weeks ago was close to 80 dollars a barrel is now closer to 70. This coming week the first set of US sanctions against Iran are set to come back, so it is possible that the market could tighten and impact oil prices again.
Looking to the week ahead company earnings will continue to dominate, however now over 80 pct of the S&P 500 have now reported earnings the potential for market impact is dwindling. Macro data continues to be released, and after last week’s rate rise 2nd quarter GDP estimates for the UK economy along with other economic indicators such as business investment and industrial production will be keenly watched. As for the US, inflation rate and producer prices will probably be the focus.