LAST WEEK – KEY TAKEAWAYS

Global trade: Tensions intensify between US and China

• Global equities fell after US President Donald Trump labelled China a ‘currency manipulator’ for allowing the exchange rate between the two countries’ currencies to fall to 7 yuan to US$1, its lowest level in over 10 years;
• China allowed its currency, the yuan, to weaken in response to President Trump’s recent threat to impose trade tariffs- taxes on companies importing products from abroad- of 10% on US$300 billion worth of Chinese goods from the start of September;
• By devaluing its currency in this manner, Chinese goods become cheaper to foreign countries and offset the pact of tariffs, if only to a degree.
• There was further bad news for global equities on Friday when President Trump claimed he was not ready to agree a trade deal with China and he would not mind if talks scheduled for September were cancelled.

• Omnis view: There had been signs during the week that tensions might be easing- the Chinese central bank took steps to stabilise its currency- but President Trump’s comments at the end of the week suggest a resolution is far from imminent. His policies regarding trade tensions with China continue to be unpredictable.

UK: Brexit concerns weigh on sterling

• Sterling weakened against the US dollar as reports emerged that if Prime Minister Boris Johnson loses a vote of no confidence in his government, which MPs could call in an effort to prevent a ‘no deal’ Brexit, he would set a date for a general election shortly after the UK leaves the EU on 31st October;
• The timing of a general election would be crucial- by holding it after 31st October, Boris could avoid any more extensions to the Article 50 deadline;
• Sterling fell further against the US dollar as figures released on Friday showed the British economy shrank in the second quarter of 2019 (April to June) for the first time in seven years.

• Omnis view: MPs cannot take any action until parliament returns from its summer holidays on 3rd September (unless it is recalled early). Meanwhile, Boris insisted the two sides have ample opportunity to agree a deal ahead of the Article 50 deadline, although he stressed it was up to the EU to show flexibility about the Irish border.

EU: Doubts over future of Italian coalition

• Italian equities fell as Matteo Salvini, one of the country’s deputy Prime Ministers and leader of the League party, called for a vote of no confidence in the Prime Minister;
• Mr Salvini was hitting back after Five Star, the League’s coalition partner, voted against a proposal for a new high-speed rail link with France, which his party supported.

• Omnis view: While Mr Salvini claimed policy disagreements were behind his call for the vote of no confidence, he may also be trying to take advantage of a recent surge in support for his party.

LOOKING AHEAD - TALKING POINTS

Economic data

• Wednesday- UK inflation rate in July.
• Friday – US retail sales in July.