LAST WEEK – KEY TAKEAWAYS

Trade: Broadening of tensions weighs on US equities

• US equities fell after US President Donald Trump claimed the US was not ready to agree a trade deal and warned tariffs on Chinese goods could increase substantially;
• China responded by threatening to limit the export of rare earths- metals used widely in the technology industry- in which it dominates supply;
• There was further pressure on US assets at the end of the week when President Trump threatened to impose tariffs on Mexican goods unless the country makes a greater effort to stem illegal immigration.

• Omnis view: Economic data suggest President Trump’s trade policy is impacting global growth: the broadening of tensions is therefore something of a concern. However, it is unclear whether these threats form part of his economic strategy, negotiation tactics or political positioning ahead of next year’s presidential election.

Performance of the S&P 500 for the week commencing 27th May 2019 (source: ft.com)

UK: Sterling falls as Brexit uncertainty intensifies

• Sterling weakened to its lowest level against the US dollar since the start of January as the Brexit party’s success in the European elections put pressure on candidates in the Conservative party leadership contest to take a harder line on the UK’s departure from the EU.

• Omnis view: The results of the European elections, together with the Conservative party leadership contest, have increased Brexit uncertainty. While Brexiter Boris Johnson is favourite to be the next Prime Minister, his minority government might face an immediate vote of no confidence if he pursued a ‘no deal’ Brexit that the majority of MPs oppose.

Europe: Salvini revives budget dispute with EU

• Yields on Italian government bonds rose after deputy Prime Minister Matteo Salvini renewed a confrontation with the EU over the country’s budget;
• Brussels subsequently wrote to the Italian government, asking why it had not made more progress towards complying with EU rules governing debt levels.

• Omnis view: The two sides appeared to have settled their differences at the end of 2018, but the League’s success in the European elections has emboldened Salvini. Disciplinary measures could follow.

LOOKING AHEAD - TALKING POINTS

Economic data

• Tuesday- EU unemployment rate in April;
• Thursday- US imports, exports and balance of trade in April;
• Friday- US non-farm payrolls and earnings in May.

Monetary policy

• Tuesday- Reserve Bank of Australia interest rate decision;
• Thursday- European Central Bank interest rate decision;
• Thursday- Reserve Bank of India interest rate decision.