Market Commentary 19th August 2019 from Charlie Hancock

Markets had a brief period of relief on Tuesday after the Trump administration said it would delay a 10% tariff on some consumer goods imported from China. Disappointing data from China and Germany emerged on Wednesday, which fuelled concerns that the US-China trade war is having a meaningful impact on the global economy.

Insurance giant, Admiral Group PLC, saw their share price rise by 4.83% across the week after reporting a rise in profits and a higher dividend. Construction company Balfour Beatty also reported an increase in revenue and profits for the first half of 2019, resulting in their share price rising by 10.64% during the week. Conversely, analyst downgrades for Rolls-Royce, Glencore and Royal Bank of Scotland contributed to their share prices falling by -3.26%, -2.93% and -10.98% respectively.

European markets were stable on Monday and Tuesday, with news that the US would delay some of the tariffs proposed for Chinese imports on 1^st September lifting investor sentiment. Weak data for China and Germany saw negative investor sentiment resume on Wednesday. In particular, news that Germany’s economy shrank in the 2^nd quarter of this year provided further evidence that trade disputes are weighing on global economic growth.

The banking conglomerate, Deutsche Bank, saw their share price decline by -7.51% across the week as the weak German economic data took its toll on the banking sector.

The sell off experienced last week continued into Monday. The fall experienced during the week’s opening session was reversed on Tuesday, following news that the US would delay import tariffs for some Chinese goods from 1^st September to 15^th December.

US news outlets reported that Trump’s advisors convinced him to delay the Tariffs by detailing how it could ‘ruin Christmas’. The imports due to be subject to tariffs from 1^st September are largely consumer goods and the decision to delay tariffs on products such as laptops, mobile phones and games consoles should mean the impact on the US consumer is less severe in the run up to Christmas.

This week saw some economic indicators paint a slightly negative picture for China, with a slowdown in property and infrastructure investment activity, falling retail sales and slowing industrial production. However, investors were positive on Chinese companies, choosing to focus on the news of delayed tariffs and talk of increased fiscal stimulus from the government in Beijing as reasons to be upbeat.

Ongoing uncertainty around the UK’s departure from the EU continues to supress UK government bond yields. Thursday did see some positive data for the UK economy in the form of buoyant retail sales, with a 3.3% rise during July beating economist expectations.

The Consumer Price Index (CPI) measure of inflation showed a 2.1% rise in July, with the higher cost of importing goods, due to a weaker Pound, being cited as the main driver. The news is not expected to change the Bank of England’s current view on interest rates and as a result Gilt yields did not move significantly.

Data released during the week showed that Germany’s economy shrank by -0.1% during the 2^nd quarter of the year. The Eurozone as a whole remains sluggish, with growth of 0.2% during the 2^nd quarter. Investors sought the security of government debt as a result, with yields on German Bunds falling deeper into negative territory.

GBP / EUR – Current 1.0953 Previous 1.0742

Pound Sterling strengthened against both the US Dollar and the Euro this week. The Pound was lifted by positive data on UK retail sales showing that the consumer element of the economy remains resilient. In addition, news reports suggesting that Parliament will explore all avenues to block a no-deal Brexit on October 31^st helped to boost the Pound.