A combination of an uncertain performance from Jerome Powell and possibly more significantly, Trump’s reignition of trade war concerns sent equities in reverse this week. The S&P 500 giving up the best part of 3%. The FTSE 100 likewise a similar amount, most of it on Friday. US treasuries and gold in demand. The Vix index fell on Friday as the CNN fear greed index moved firmly back into fear territory.
There seems little to reignite equity sentiment at present. The Federal Reserve has played down the expectation of a new rate cutting cycle. The tensions with Iran continue. August is traditionally a poor month for equity markets. Global economies are barely growing; the earnings season is modestly beating lowered expectations. Over 75% of the S&P 500 have now reported, and 49 of the companies have issued negative guidance for the coming quarter and only 19 positive. The Markit Global Manufacturing Purchasing Manager Survey is in its third month of contraction.
All that negative news was being counteracted by the hope this would drive the Fed and the ECB to more aggressive monetary stimulus. Trump announcing that he was planning on another 10% tariff on 300 billion dollars of Chinese goods has been another nail in the coffin. If there is a modest ray of sunshine, it is that Trump has not implemented these new tariff measures just yet. He intends to introduce them on the 1st of September. That does give some more time for the negotiations to continue.
Looking now to the upcoming week. The second estimate for UK GDP for the second quarter gets released this week. Expectations are for the economy to have shrunk quarter on quarter by 0.1%. Year on year to grow by 1.4% down from 1.8% previously. Brexit is taking the blame, which must be part of the story. However, the fact that the total euro area is struggling at present cannot help. There is a series of other data points including industrial and manufacturing production, all expected to have shrunk in the past month.
There is the usual selection of economic sentiment indicators and some jobs data to be released for the US economy this week. The trade negotiations will be front and centre for investors. China trade balance, in the light of the trade tariffs, and the latest Purchasing Manager Surveys will also gain some focus.
The S&P remains up 17% year to date but only 3% from this time last year. Investors have plenty to focus on from the sunbed. I had the opportunity to be with Victoria Scholar on Friday discussing some of the current issues and have added the link.