Please find this week’s edition of Weekly Digest attached.
Friday saw the release of more positive US economic data, with both retail sales and consumer sentiment ahead of market expectations. Investors therefore reassessed the chances of further substantial interest rate cuts from the Federal Reserve, with the data suggesting a resilient domestic economy. The central bank is expected to announce a 0.25% cut at its upcoming meeting on Wednesday.
Sterling strengthened last week on the decreased probability of a no deal Brexit, after reports that Boris Johnson may craft a separation deal with the EU that applies a “backstop” only to Northern Ireland. Last week also saw an improved tone in trade commentary between the US and China, with America delaying the implementation of 25% tariffs on the last “un-tariffed” portion ($250 billion) of Chinese exports by two weeks. This, combined with further stimulatory policies announced by the European Central Bank, and a relatively quiet week in Hong Kong, supported global equity markets and led to a sell-off in government bond markets.
Gold, a good marker of geopolitical stress, is back above $1500 at the time of writing after half of Saudi Arabia’s oil output was taken offline due to drone attacks over the weekend. Oil prices are spiking (the Brent crude price is up by around 14% at the time of writing) as the US Defence Secretary has pointed the finger of blame at Iran, rather than the (Iranian-backed) Houti rebels in Yemen who have claimed it. The potential for an oil-price driven shock to growth is suddenly very real, particularly if America retaliates militarily against Iran, and Iran responds by attempting to close down the Straits of Hormuz.
This week, aside from politics, central bank meetings are the focus: the US Federal Reserve meets on Wednesday, followed by the Bank of Japan and the Bank of England on Thursday. The Brexit week starts with Boris Johnson going to Luxembourg today to meet Mr Juncker. Corporate results are still relatively quiet, with names of interest due to report including Adobe, Ocado, Kingfisher, Keywords Studios and Hurricane Energy.