2 July 2019
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Equity markets are lacking decisive direction this week, continuing on from a mixed performance last week. European indices are pausing today after yesterday’s rally which was related to a truce between the US and China. Rhetoric from both sides has acknowledged the ceasefire on tariffs but reiterated that there are still many obstacles to overcome.
As respective leaders came together at the G20 summit, Beijing noted that it only agreed to restart talks on the basis of respect and said that pressurizing tactics should not be the way forward. Trump, meanwhile, repeated that any deal has to be more beneficial to the US.
At the World Economic Forum, Premier Li, China’s head of government, admitted that there are downward pressures on the economy. Li stated that there will be cuts in banks’ reserve requirement ratios and potentially a reduction in funding costs for small firms, but that monetary policy will remain prudent.
In the UK, activity amongst manufacturers has fallen to its lowest level in six years, signalling an end to the temporary boost from Brexit stockpiling. June’s construction Purchasing Managers’ Index (PMI) from Markit Economics also disappointed, posting 43.1 versus a forecast of 49.2 this morning, the sharpest contraction in 10 years. The spate of underwhelming economic data has increased fears of negative UK growth in Q2. The services sector PMI reading is due tomorrow.
UK house prices rose 0.1% month-on-month in June, according to the Nationwide Building Society, meaning annual growth has slowed to 0.5%. Nationwide attributed the sluggish growth to low levels of consumer confidence and new buyer inquiries.
Yields on 10-year Italian government bonds have remained under 1.9% this week, touching the lowest level since May last year and extending the trend of the last month amid expectations of more European Central Bank stimulus and optimism around Italy’s budget.
Finally, oil prices have climbed over the past week due to tighter supply expectations, amid a decline in US stockpiles and Washington’s sanctions on Iran.
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