LAST WEEK – KEY TAKEAWAYS

CUSTOMS BILL NARROWLY PASSES THROUGH PARLIAMENT

• New Brexit Secretary Dominic Rabb disclosed that his department is stepping up preparations for a ‘no deal’ Brexit;

• The Prime Minister yielded to hard-line Brexiteers and included four amendments to the Customs Bill that parliament narrowly passed on Tuesday;

• In his resignation speech, former Foreign Secretary Boris Johnson told MPs that ‘it’s not too late to save Brexit’ as he positioned himself as leader of the Leave faction;

• Omnis view: As deadlines loom, confrontation between the opposing factions is likely to become more common. However, parliament breaks up for its summer recess on Tuesday so expect a lull over the next six weeks.

LATEST RELEASE SHOWS UK ECONOMIC DATA SOFTENING 

• Inflation unexpectedly softened to 2.4% in June, as falling prices for food and clothes offset rising transport costs;

• Wage growth slowed slightly to an annual rate of 2.5% between March and May, even though unemployment fell to 4.2% over the same period;

• Retail sales unexpectedly fell by 0.5% in June compared to May, reversing strong growth in the previous two months. 

• Omnis view: Despite weaker-than-expected data, the BoE is forecast to raise interest rates in August. Higher interest rates and continued uncertainty over Brexit are likely to weigh on UK growth.

TRUMP MEETS PUTIN IN HELSINKI

• The US president met his Russian counterpart on Monday, reporting afterwards that Putin strongly denied meddling in the 2016 US presidential election;

• Democrats and Republicans criticised the President for effectively disregarding his own intelligence services and threatened new sanctions against Moscow;

• Trump then claimed he misspoke in his first interview following the summit and accepted US intelligence’s conclusion.

• Omnis view: Although Trump’s u-turn limited the damage to a degree, concerns over his relationship with Russia persist, adding to the current sense of elevated political risk.

FED CHAIR OFFERS CONTRASTING VIEW TO TRUMP 

• Federal Reserve Chairman Jay Powell testified in front of the US Senate on Tuesday, arguing that trade tariffs could hinder growth and claiming he does not see the EU as a foe;

• The International Monetary Fund suggested tariffs introduced by President Trump could reduce global growth by 0.5% by 202;

• Trump defied convention by publicly stating he is “not thrilled” by the Fed’s tightening of monetary policy. Nonetheless, the Fed is widely expected to continue gradually raising interest rates as US economic data remain firm.

Omnis view: The prospect of escalating trade tensions adds an element of uncertainty to an otherwise positive near-term outlook for the US economy. However, the Fed’s ability to manage its tightening cycle is likely to be equally important to investors, if not more so.

JAPAN SIGNS TRADE DEAL WITH EU

• Japan and the EU signed the world’s largest bilateral trade deal on Tuesday, creating a trade zone that incorporates about a third of global gross domestic product (GDP);

• Japan reported a $6.4 billion trade surplus in June, bouncing back from a deficit the previous month, as exports rose by 6.7% and imports by 2.5%;

• Japan’s annual core inflation picked up slightly in June to 0.8%, largely driven by the rise in oil prices;

• Reuters reported that the Bank of Japan (BoJ) has been discussing potential changes to its quantitative easing programme. 

• Omnis view: From a global growth perspective, it is positive that Japan and the EU are bucking the protectionist trend spearheaded by the US. Meanwhile, there are tentative signs of improvement in the outlook for the Japanese economy, raising the prospect that the BoJ will join other major central banks in moving away from extraordinarily loose monetary policy.

LOOKING AHEAD – KEY TALKING POINTS

KEY ECONOMIC STATEMENTS FROM ECB AND US

• The European Central Bank (ECB) is expected to leave interest rates unchanged when it meets on Thursday;

• US GDP data are published on Friday, with economists predicting an annualised rate of 4.2% for the second quarter as the Trump administration’s fiscal stimulus takes effect.

• Omnis view: While the eurozone continues to recover from a weak first quarter, a significant gap remains with US economic growth. This has recently been – and may remain – a major support for the dollar, in spite of President Trump’s efforts to talk down the US currency.

US DOLLAR INDEX, 31 DECEMBER 2016 – 23 JULY 2018

Source: Bloomberg

BUSY WEEK FOR CORPORATE EARNINGS

• A number of companies post second-quarter results this week, including some of the tech industry’s biggest players; 

• Alphabet is expected to report strong results today, followed by Facebook on Wednesday, Amazon on Thursday and Twitter on Friday;

• The auto industry is also strongly represented, with General Motors, Ford and Fiat Chrysler all posting results on Wednesday.

• Omnis view: US corporate earnings are likely to remain strong, boosted by tax cuts and robust economic growth. The auto industry will be closely monitored for indications of how escalating trade tensions may impact the real economy.