The past week started on a terrible note as the equity markets continued to react to the increased threat of a full-blown US trade war with China. America calling China a currency manipulator not helping investor sentiment. The apparent increased threat of the UK leaving Europe having not secured an agreement with Europe continuing to weigh on UK assets. Sterling hit new lows for the year, the latest estimate for economic activity in the second quarter reporting the UK economy shrunk by 0.2%, likewise not helping the currency. US equities stabilised and even recovered most of the lost ground from earlier in the week, by Friday afternoon. The Chinese central bank establishing yuan back above 7 to the USD raising investors hopes that the Chinese and Americans may resolve the situation.
Europe was not immune from its internal problems as the Italian government has called for a snap election.
Despite the increased tensions around the globe, the Vix fell on the week back below its long-term average. Suggesting that equity investors felt more confident as the week ended. The CNN fear and greed index finishing the week well into fear. The AAII retail investor sentiment survey reported sentiment hit the lows of mid-December last year.
The US treasury yield curve continued to flatten during the week as longer-term rates fell faster than the shorter-dated ones. As yields continued to fall, the price of gold continued to rise. At one-point trading above 1500 dollars an ounce before finishing the week just below that mark. Commodity prices remained under pressure on global growth concerns. The price of oil entered bear market territory. Second-quarter earnings season is coming to a close, and there is little comfort as companies providing negative guidance outweigh those offering positive by nearly 5 to 1. Overall companies have just about met the downgraded expectations.
The coming week will continue to be dominated by trade war fears as most investors remain watching the markets from their smartphone and on their sunbed. There is a broad range of data coming from the US economy in the coming days. Including inflation, consumer, retail sales and industrial production. After last week’s weak GDP report, this week, we get wage growth, unemployment, inflation and retail sales data for the UK economy. Year on year inflation is expected to remain at 1.8%, an unexpected pick up in inflation will not help Bank of England with their interest rate decisions.