Week ending 9th August 2019.

This week has been much like a Sunday, following a ‘big’ Saturday night out… in that not that much has happened other than the hangover from the night before! In this case the night before being last week, and the hangover being the fading reaction of US President Donald Trump’s tariff threats and indeed the US Federal Reserve rate cut.

As you will remember from last week’s weekly market summary, I wrote about the short term impact from the threat of tariffs and indeed sentiment overreacting to short term news, presenting a buying opportunity. This is broadly what occurred this week, and whilst the overspill from Trump’s tariff announcement dragged on the markets early on, following the threat of Chinese retaliation, we saw a bounce back in the second part of the week. So, what really happened? Well the truth is, not a lot! Sentiment pressured markets early on, but nothing further has actually happened, and whilst the Chinese have allowed their currency to naturally weaken, this week we did see the PBOC (Peoples Bank of China) set their currency at a stronger than expected rate against the basket of currencies they fix against (despite Monday seeing the Yuan decline to its lowest level against the Dollar since the Financial crisis).

So, whilst it feels like we are back to square one with China ceasing their purchase of US agriculture goods, and the US threatening tariffs… not a lot has changed in the negotiation tactics of both nations. And, even though this is a source of frustration for the markets, which can cause worry, it is important to remember it is this noise driven volatility that presents opportunities.

Elsewhere it has been relatively quiet, however there have been some significant data sets. Arguably most significantly, on Thursday we saw the release of Chinese trade data, which came in significantly stronger than anticipated, seeing exports grow by 3.3% (4.3% greater than expectation and 4.6% greater than prior), in addition to Imports coming in at -5.6% (3.4% greater than expectation and 1.7% greater than prior). This data is significant given the US/China trade rhetoric at present, suggesting that perhaps things are not quite as bad and impactful as sentiment is suggesting! With that in mind, next week’s US trade data should make for an interesting read.

On Monday we saw both German Factory Orders and French PMI data (Purchasing Managers’ Index) beat expectations; a strong set of data in light of global trade tensions… but with Chinese and US trade taking the limelight, this data suggests any potential trade frictions between the European Union and the US have been pushed out, with European markets remaining one of the strongest performing asset classes in sterling terms in 2019. This is in spite of Italian political uncertainties that has this week seen pressure mount on the country’s Prime Minister, Giuseppe Conte, to call for a snap election… which, as history has shown, is common place in Italy!

On Wednesday the Reserve Bank of India cut its interest by an unprecedented 0.35% to 5.4%, in order to stimulate the economy and ultimately, wages and inflation. Today we also saw China release inflation data, beating expectation at 2.8% year on year, signalling that the economy is more robust than the broader market anticipated. The UK released its Growth data for the second quarter today which saw a contraction of 0.2% quarter on quarter; the first contraction in over 6 years. This was however to be expected, as with uncertainty surrounding Brexit, pressuring corporates to run down inventories in the first quarter, and an element of seasonality as factories looked to bring forward maintenance shutdowns in order to avoid the original Brexit deadline! With that in mind, an element of a recovery in growth is expected by the market in the third quarter.

So, whilst unable to predict Donald Trump’s antics, next week looks set to be a quiet one with US trade and European GDP to look forward to… but for all of those petrol heads out there, next Thursday sees ‘Sotherby’s Collector Car Auction’ take place, with an original McLaren F1 to take centre stage (with an auction estimate of $23 million)!

Jonathan Wiseman, Investment Management Expert*

*Jonathan Wiseman is a Fund Manager at Wealth at Work Limited which is a member of the Wealth at Work group of companies