Monday 10th June 2019
The week that was
Last week was one for commemorating the past: western leaders gathered in Normandy to mark the 75th anniversary of D-Day, former Polish president and Nobel Peace Prize winner, Lech Walęsa, spoke in memory of Poland’s first semi-free elections 30 years ago, and Hong Kong held a candlelit vigil in honour of demonstrators killed by Chinese troops in Beijing, 30 years ago.
Although traders and investors might have been focused on more immediate themes last week – the openness of markets, the openness of borders, and government control over both technology and information – in reality, these have been strongly influenced by past events. In all, investors appeared to view the week as more positive than negative, although any gains need to be seen in the context of recent losses.
US antitrust investigations probe tech sector
Last week, the technology sector was under the microscope, with the US Department of Justice announcing it was preparing an antitrust investigation of Google and Amazon, the Federal Trade Commission saying it would investigate Facebook and Amazon, and the House Judiciary Committee announcing it was launching its own investigation into the sector.
Meanwhile, the White House struck a deal with Mexico – source of a third of the US’s imported cars – over the weekend, and, on a state visit to the UK, Donald Trump floated the possibility of a US-UK trade deal. Yet, everyone knows which trade relationship matters most in the current climate. Last week, Apple’s CEO said he didn’t expect Apple to be targeted by China in a trade war – leading to its share price rising in response. The S&P 500 ended the week up, too.
State censorship in China
Despite Apple’s comments, Beijing did report that it is compiling a list of “unreliable” foreign firms – presumably retaliation for the US creating its own equivalent blacklist, a list that includes Huawei. Yet, when it comes to technology companies, China seemed most concerned last week about what was going on at home. One of the most recent crackdowns by state censors has been against financial bloggers, notably on WeChat and Weibo. Beijing also persuaded Refinitiv, the financial data major, to remove all stories relating to Tiananmen ’89 from its Eikon terminals in China. It cannot wipe stock market history in quite the same way, however. Last week, the Shanghai Composite index finished the week down, as the trade war continues to scare away investors.
Japan enjoys a stronger week
Stocks in Japan are certainly sensitive to Chinese fortunes but experienced a positive week, despite the economy “worsening” for the first time in more than six years, according to one leading indicator. Yoshihiko Ito of Nippon Value Investors, Manager of the St. James’s Place Japan fund, said: “If the US-China trade war continues to escalate, the Chinese slowdown would hurt Japanese companies who have business in China – such as in auto sales and tours. Second, Japanese suppliers would be hit by the increased tariffs on Chinese products sold in the US.”
Trump visits the UK
The UK market performed relatively strongly over the week – the FTSE 100 slowly rose, and service sector growth rallied, despite construction activity falling. The big news, however, was the Queen meeting Donald Trump, with the latter enthusing “she’s a spectacular woman.”
Most of the political action was in Peterborough, where Labour only narrowly beat The Brexit Party to hold onto its seat, pushing the Tories into third place. It now looks as though parliament will not, in fact, go into recess before a new Prime Minister is in post, thereby smoothing the way for Labour to hold a parliamentary vote of no-confidence in the new leader before the break – as ever, it remains unclear whether a change in leader will indeed translate into greater political stability and progress.
There was more positive news this morning that the UK and South Korea have agreed to sign a post-Brexit trade deal, but it was quickly overshadowed by the news that the UK economy shrank by 0.4% in April – manufacturing in April fell by a stunning 44.5% (annualised). Mike Hawes, Chief Executive of the Society of Motor Manufacturers and Trading, described the fall’s scale as “extraordinary”, adding that the figures “are evidence of the vast cost and upheaval Brexit uncertainty has already wrought on UK automotive manufacturing businesses and workers”.
In the eurozone, Italy was found to be in violation of its fiscal rules, but Italy’s governing party floated the idea of issuing a secondary currency to cover its debts. None of this was as important to investors as the words of President of the European Central Bank (ECB), Mario Draghi, who told press last week that the ECB is ready “to use all the instruments that are in the toolbox”, including both interest rate cuts and fresh bond purchases.