Weekly Market Update: Markets shrug off US G7 communique snub

Read our full Market Update Week 23

Market Update

Last week markets were back in risk-on mode, as Global equities gained +0.9% in Sterling terms, led by US stocks which were up +1.2%. The gains were fairly evenly dispersed amongst sectors, although Utilities were the main loser as Treasury yields crept higher. Japanese equities were the other big mover, up +1.4%. Elsewhere gains were more muted, as Emerging Market equities gained +0.1%, European equities were flat and UK equities were down -0.1%. At the time of writing, despite Donald Trump’s refusal to sign a G7 joint communique and Twitter rant about Canadian Prime Minister Justin Trudeau, markets have remained sanguine and are up in the morning’s trading. With markets in risk-on mode, US 10Y Treasury yields rose from 2.90% to 2.95%, while UK 10Y Gilt yields rose from 1.28% to 1.39% as Sir Dave Ramsden, one of the Bank of England’s most dovish members, signalled support for higher rates with wage pressures mounting. Over the week Sterling gained +0.4% vs USD and +0.5% vs JPY, but fell -0.4% vs EUR. In US Dollar terms Gold gained +0.4%, while Oil fell -0.1%.

CIO Analysis

Once again, talk in the media will be about the fallout from the G-7 meeting in Canada, where the US President complained about unfair practices against the US. Yet, to the surprise of news outlets, markets have been calm, with stocks rising and bond prices falling. The S&P 500 is near its previous highs, but with more supportive valuations after two great earnings seasons. UK stocks have recovered due to low valuations and higher energy prices, while the Pound has stabilised as traders have become desensitised to the Brexit news flow. Emerging Markets are down for the year, which is perfectly understandable given the stresses the Dollar rebound has caused exporting economies, especially those with Dollar-denominated debt. So, instead of politics, or even central banks, it is fundamentals which matter in today’s markets. Investors should focus on the longer term issues. Instead of trying to figure the contents of the next presidential tweet, we are instead focusing on inflation pressures building across the globe (Chinese producer inflation rose for the second consecutive month, and oil supply pressures remain), and what these mean for global interest rates.

David Baker, CIO