Weekly Market Update: Equities rally despite no one liking Facebook's outlook

Read our full Market Update Week 30

Market Update

Japanese and Emerging Market equities lead markets higher last week, gaining +2.6% and +2.2% respectively in Sterling terms. These regions had their best week in more than two months, as China’s stimulus measures buoyed the region. News of an agreement reached between President of the European Commission Jean-Claude Juncker and Donald Trump on US-EU tariffs also lifted risk assets, with European equities up +1.5%. US equities gained +0.7%, although Facebook’s warning of slowing user and sales growth saw the tech giant fall -20%. Unsurprisingly the IT sector was the main laggard for the week, with Materials and Financials leading the way globally. Meanwhile UK equities gained +0.3%. It was a mixed week for Sterling which fell -0.2% vs USD and -0.6% vs JPY, but gained +0.3% vs EUR. Government yields rose across the board, with UK 10Y Gilt yields up 4.6bps, US 10Y Treasury yields up 8.3bps and German 10Y Bund yields up 3.4bps. In the commodities space, Gold fell -0.7% while Oil fell -2.5% in USD terms.

View From The Desk

Contrary to popular belief, the summer is not a period of inactivity for markets. Mr Trump has stepped up his trade rhetoric, US GDP soared, but social media stocks have plunged as users are migrating to new “cooler” platforms. Meanwhile, the fun in Italy is just beginning. The founder of the 5 star movement, Beppe Grillo, called for a referendum on the EU, even as Matteo Salvini, the deputy PM and head of the Northern League, urged Theresa May to take a harder (!) stance on Brexit, against prejudiced Brussels. However troubling the politics (or amusing, depending on one’s stand point), our focus this week will be on the BOE rate decision. The market is pricing in a 90% hike probability, which means that should there be a surprise the Pound could suffer losses. Is there a case for a surprise hold on interest rates? Yes, so long as Mark Carney is taking into account the Brexit developments. The probability of a No-deal Brexit is on the rise and the implications of this run counter to the central bank’s forecasts.

George Lagarias, Senior Economist