Monday 20th May 2019
Back with Brexit
Following ongoing pressure from her party, the UK Prime Minister has finally agreed that, if she can’t get her proposed Brexit deal through parliament, she will be out before the summer recess, which commences on 20th July. After talks with the Labour Party broke down, it means that the week commencing 3rd June 2019 is when Theresa May must present the Commons with more or less the same Withdrawal Agreement that has already been rejected three times.
If being at the forefront of the Brexit debacle in the UK wasn’t enough, this Thursday she faces a potentially brutal round of European elections. Polls are currently suggesting that the Labour Party will also suffer as the pursuit of a middle ground isn’t the favourite ideal of voters. From this, they are expected to face tough competition at the hands of the Greens, Liberal Democrats and Change UK. The Conservatives are expected to lose seats to the Brexit Party.
Despite the continuing political debacle, the UK economy enjoyed a strong first quarter, where it grew by 0.5%. Part of this stockpiling was a large contributing factor to this figure, pointing towards pre-Brexit preparations rather than demand-driven growth. In addition to this, the UK’s jobless rate struck a 45-year low last week – however, employment figures only increased by 99,000 jobs against the predicted 140,000. These numbers also correspond to a rise in self-employment, as full-time employment actually dropped by 55,000.
Investors were also reminded in the benefits of the UK stock market’s global reach last week, as the falling sterling pushed up the value of UK-listed stocks, thanks to the importance of overseas earnings represented on the FTSE 100.
Where are the trade wars now?
Last week we discussed the growing trade war between China and the US. This week we can see that US stocks have suffered one of their biggest one-day losses since January. After Washington identified nearly $300 billion worth of new Chinese imports that would face 25% levies as early as this summer, Beijing retaliated with plans to increase levies on $60 billion of US imports.
In response, both the S&P 500 and the Dow Jones Industrial Average fell, at the same time as taking many other leading indices down with them, not least Japan’s TOPIX. The tariffs on China are expected to hit the automotive and parts sectors, not only in China but also in Japan, as this nation also faces prospects of US tariffs on its own automotive parts sector in six months.
US President Donald Trump signed an executive order enabling the US to ban telecoms equipment from ‘foreign adversaries’. An example of this is Huawei being added to a list of entities who are undertaking activities contrary to US interests. This will therefore limit sales or transfers of technology to Huawei – as a result, US semiconductor companies suffered drops in their share prices. Over the weekend, Google suspended access to some Huawei apps on its Android system, which is a hugely damming blow for the company if the policy should remain in place.
In other tech news, San Francisco is the first American city to ban facial recognition software, WhatsApp reported a security flaw that allows hackers to install surveillance software on smartphones, and the Supreme Court gave the okay for iPhone users to sue tech giant Apple over enjoying an unfair apps monopoly. Despite all of this, the tech-heavy NASDAQ index ended the week relatively flat.
The Shanghai Composite index also ended the week relatively flat, despite the US–China ructions. But when you dig a little bit deeper, this could be due to the fact that Beijing has chosen to allow the renminbi to drop in value faster in recent days.
The rest of the world
Although European Parliament elections loom, the upcoming elections in India could well be more impactful on the markets. Results, expected later this week, are set to rule in favour of the incumbent Narendra Modi, whose popularity sparked when he responded to cross-border terror attacks by sending planes across the Pakistan border.
Investors are also feeling more comfortable with India as of late, as during Modi’s tenure a net $25 billion has been invested into equities, and another $30 billion into bonds, even as emerging markets across the world have struggled.