Louise Greenwell

Market Commentary

For the week ending 27 July 2018
Report by Louise Greenwell
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Louise Greenwell

Heatwave aside, Brexit continues to hog the limelight in the UK. Having put forward what she believes to be a workable exit plan, Prime Minister Theresa May is still seeking support from both Parliament and Europe. New Brexit Secretary Dominic Raab, is optimistic, stating he expects to strike a deal by October, although admitted ‘no deal’ plans were being put into place. But Michel Barnier, Europe’s Chief Negotiator for Brexit, remains of the opinion that the White Paper conflicts with ‘fundamental’ European principles. Barnier’s latest gripe with the Chequers plan is the viability of Britain’s proposal to keep the UK temporarily inside the European Union’s (EU) regulatory area for goods; “we have doubts it can be done without putting at risk the integrity of the customs union, our common commercial policy, regulatory policy and fiscal revenue.” Unsurprisingly, Sterling has barely broken out above $1.32 this week, which is a reflection of the continued uncertainty as to whether a deal with Europe will be reached.

Meanwhile, President Trump continued his seemingly endless appetite for provocation, criticising the Federal Reserve by stating that “tightening now hurts all that we have done”. However, he soon contradicted himself, adding that he was “letting them do what they feel is best”. Treasury Secretary, Steve Mnuchin, reiterated the President’s support for the Federal Reserve’s autonomy and assured that there was no intention of interfering in the currency markets. Nonetheless, Trump’s comments were significant, as they mark the first time a President has commented on activities of the Federal Reserve since the 1970’s and the Nixon Shock. Some have pontificated that Trump’s hints at meddling are a retaliation for the ongoing devaluation of the Chinese Yuan and the next move in the trade war.

However, in a sign that tensions might be easing, Wednesday saw President Trump and EU officials strike a deal to work towards ‘zero’ tariffs, barriers and subsidies. The EU also agreed to buy billions of Dollars’ worth of American exports, including soya beans and natural gas, and made a pact to work to reform international trade rules. Markets welcomed this breakthrough, with European equities stronger on Thursday’s open. European stocks continued to behave well later in the day, as the European Central Bank announced its decision to hold interest rates steady, in line with expectations. Conversely, US indices were rattled by Facebook’s warning of slower user and advertising sales growth, causing the stock to plummet by nearly 20%. However, contagion was fairly restrained with the tech-heavy Nasdaq 1.4% lower, significant, but far from disastrous.