You can's start a fight here this is the war room. Dr Strangelove

 A rollercoaster week for equity markets as the uncertainty around trade talks with China continues to dominate sentiment. The week started badly as US leading equity indexes lost 2.4%, then spent the next three days clawing those losses back. Friday in comparison was more muted, leading to a modest gain on the week overall. Bonds remain well bid as the uncertainties around trade continue.

The pound fell on the week against both the US dollar and the euro. Probably a response to the even weaker position Theresa May finds herself within her party. Leading to renewed concerns that a general election could see Jeremy Corbyn’s Labour party come to power. The resurgence of Nigel Farage’s Brexit party and their polling ahead of the European elections, suggests that they could do better in a General Election than the Conservative Party, according to some polls.

Trade deals continued to make headlines, the announcement that the US had reached an agreement with Canada and Mexico to lift tariffs on metal imports encouraged investors. The latest tweet from Trump accusing the EU of being worse than China did not help into the weekend.

Trade war concerns have led to over 12bn dollars being pulled from US equity-based funds, the fourth consecutive week of outflows. According to Lipper fund flow research. The fund flow data would indicate high fear levels. In contrast the Vix index closed the week just below 16 would suggest investors believe market risks remain low despite the headlines.

Brent Crude rose back over 70 dollars a barrel as oil supply disruptions in Iran and Venezuela are picking up in a meaningful way. Some analysts are predicting the price could rise as high as 90 dollars. Rising oil prices at a time when economic growth is already slowing are not helpful.

Share buybacks continue to help support equity prices as US companies have bought another 200 billion dollars of their shares back in the first quarter. In line with what they did in the last quarter of 2018. To understand the impact companies can have reinvesting, Ned Research concluded that without this level of buyback, the US stock market would be 19% lower.

As well as the trade talk headlines continue to dominate sentiment, other events in the week ahead include the Federal Reserve minutes from the last meeting and the European elections. We also have a series of macro data points. The Federal Reserve minutes might give a further indication where the Fed sees interest rate outlook for the year ahead. The meeting took place just after the better than expected Q1 GDP report. April’s US durable goods orders and the flash Purchasing Manager Surveys for the month of May will also give an insight into the underlying strength of the economy.

Posted on May 19, 2019 .