Market Update

Market Update June 2018

Posted: 20th June 2018   |   Share

As the world celebrates ‘the beautiful game’ world trade faces pressures.

It was a busy month for the United States with Donald Trump introducing increased trade tariffs and his historic talks with North Korean leader Kim Jong-Un.

Mr Trump has entered into a joint agreement with Mr Kim in a hope to evoke nuclear disarmament and reduce tensions within Korea.  And just as the world thought the impending trade war between the US and China couldn't get any worse, Mr Trump has announced he will impose tariffs not only on $50bn worth of Chinese goods, but issued a threat for a further $200bn.  He has also upset allies in the UK, Canada, Mexico and Europe with his import tariffs that result in duties of 25% on Steel and 10% on aluminium.

The Federal Reserve continued in their bid to normalise monetary policy raising its key interest rate this month.  The move had been broadly anticipated with officials’ projections pointing to two more hikes during 2018.  The US central bank moved the target range for its federal funds rate from 1.75% to 2% and commented at a press conference that the economy “is doing well” and that the overall outlook for growth “remains favourable” despite concerns that a potential trade war could dent global growth.

The UK posted a massive 4.4% annual increase in retail sales this month for May thanks to improving weather and the Royal wedding which seem to have helped lift spirits and encourage spending.  However not all news has been rosy with continuing Brexit talk fueling negative sentiment and growth expectations having been downgraded by the British Chamber of Commerce warning that the United Kingdom could suffer its worst year of growth since 2009.

Figures released this month reported Consumer Price Index inflation rose to an annual rate of 2.4% in May which was unchanged from the month prior according to the Office for National Statistics and UK unemployment remained at a four-decade low.  With inflation seemingly stalling this could hold the Bank of England back from changing interest rates imminently.  Economists on the rate-setting monetary policy committee (MPC) deferred the widely expected hike in May after sluggish GDP growth disappointed and market now awaits further indications of when a hike might materialise.  No change is expected at this week’s meeting.

In Europe we saw the European Central Bank (ECB) announce the end of its quantitative easing bond purchases.  The ECB said that it plans to reduce the pace of asset purchases from €30bn per month to €15bn from September to December and highlighted that “net purchases will then end” at the end of December.  The Bank also changed its guidance on the future path of interest rates explaining that, whilst rates remained unchanged, this will continue “at least through the summer of 2019” and emphasised that the end of the programme will be “subject to incoming data”.  So as to avoid a sell off the stock of government and corporate bonds owned by the bank will remain steady “for an extended period of time”.


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