Please find this week’s edition of Weekly Digest attached.
Last week was a rollercoaster ride for investors in both equity and bond markets, as uncertain politics and weaker economic data in both Europe (with a contraction in German GDP) and Emerging Markets unsettled investors. The S&P 500 moved by more than 1% on four days last week, closing with Friday up by 1.4%. Overall, the S&P 500 and Global Equities still ended the week approximately 1% lower. Markets have started in positive territory this week, however, as a relatively peaceful weekend in Hong Kong has somewhat eased tensions.
Yields on the longest maturity government bond in over twenty developed markets hit new all-time lows last week. The US ten-year yield briefly fell below that of the two-year Treasury yield (a yield curve inversion), prompting concerns over an imminent US recession. Ratings agency Standard & Poor’s warned that it was on “high alert” over the US economy and now sees a roughly one-in-three chance that the world’s biggest market will fall into recession in the next year. At the time of writing, the 10-to-2 year curve is in marginally positive territory, suggesting some easing in concerns after the White House’s economic adviser Larry Kudlow insisted that the US economy is “in pretty good shape”. Mr Kudlow added that the Trump administration was looking at the possibility of tax cuts, perhaps funded by money collected from tariffs on Chinese goods.
China tensions remain elevated, with Donald Trump warning that any violence towards Hong Kong protesters could damage prospects of a trade deal and confirming that the US has sold advanced fighter jets to Taiwan. Reports that the US government might postpone the ban on US companies doing business with Huawei is likely to be of little comfort to the Chinese side.
In the UK, Boris Johnson’s first outing on the world stage as Prime Minister is the focus. He will meet with Angela Merkel in Berlin and potentially also with President Macron before the G7 meeting starts on Friday in Biarritz. Outside the UK, the minutes from the latest US Federal Reserve meeting (where interest rates were cut) are to be released on Wednesday. Thursday sees the start of the annual central bank symposium in Jackson Hole, along with the release of the latest European Central Bank minutes. Inflation data in Europe and the US are also due for release through the week.