Markets & Key Events | 21st June 2019

Rising tensions between Iran and the US superseded by expectations of monetary easing

Despite Iran downing a United States surveillance drone on Thursday, and unqualified reports of President Trump having been on the brink of authorising retaliatory air strikes, both equity and bond markets rallied this week, as central banks laid the path to monetary easing should the global economy continue to weaken.  Hopes were also raised of a resolution to the US China trade war, as Trump is scheduled to meet with President Xi Jinping of China at the G20 meeting in Japan next week. The US dollar, having been stubbornly strong year to date, finally showed some early signs of easing, providing a further fillip to emerging markets.

As of 12pm London time, the US S&P 500 index rose 2.3% over the week and the technology focused Nasdaq rose 3.3%.  The EuroStoxx 600 rose 1.7% and the UK’s FTSE All Share climbed 1.1%, held back by increased risk of a ‘no-deal Brexit’, as Boris Johnson increasingly looks set to win the Conservative party leadership contest.  The Australian S&P/ASX 200 index rose 1.5%, whilst the Japanese Topix index was one of the few markets to end lower, finishing the week down 0.1%, hindered by the Japanese Yen strengthening against the US dollar.  Emerging markets rose 3.8%, with the Chinese Shanghai Composite index rising 4.2% and the Hong Kong Hang Seng up 5.0%.

Bonds supported by dovish central bankers

As the Fed dropped the word “patient” from its stance on future interest rate moves and cited rising “uncertainties” for the economic outlook, US government bonds continued their rally.  The 10-year US Treasury yield hit a low of 1.97% on Thursday, a level last seen in November 2016.  German bunds hit a record new low of minus 0.32% on the 10-year after Mario Draghi, outgoing President of the ECB, pointed to signs of “lingering softness” in the Eurozone and added that additional stimulus would be needed if inflationary pressures continued to fall.  UK gilt yields also continued to fall, despite the Bank of England being one of the few central banks globally not to sight loosening monetary policy, as the interest rate committee voted unanimously to keep rates on hold.  Sterling also rallied against the US dollar, briefly regaining the $1.27 level, however, versus the Euro it continued to weaken, with Sterling now trading at €1.1185.

Rising Iranian US tensions boosts crude oil prices

Crude oil jumped higher this week on the back of increasing tensions in the Gulf between Iran and the US.  Brent crude jumped over 5%, currently trading at $65.3 a barrel, whilst US WTI (West Texas intermediate) rose over 9%, now trading at $57.5 a barrel.  Within equity markets, energy was one of the strongest performing broad sectors over the week, with only technology narrowly outperforming on a global basis.

After almost six years, gold breaks out of its trading range

Expectations of a US interest rate cut also helped gold to finally break out of the trading range it has been stuck in for the best part of six years, as it hit an intraday high of $1,410.97 an ounce on Friday, before falling back to $1,396 an ounce, still it’s highest level since 2013

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