Markets have been choppy this week ahead of the G20 meeting in Japan, when President Trump of the US and President Xi of China are due to have a side meeting to discuss the trade war.  Second to this, whilst expectations are running high for the US Federal Reserve (Fed) to cut interest rates in July, James Bullard, president of the St Louis Fed told Bloomberg that a 50bps cut in July “would be overdone”, prompting an immediate sell-off in markets.

As of 12pm London time on Friday, the US equity market had fallen 0.9% over the week, European equities were down 0.3%, UK equities were up 0.3%, Japanese equities up 0.3%, Australian equities down 0.5% and Emerging markets up 0.2%, with Chinese equities having fallen 0.8%.

Against an uncertain backdrop, government yields rallied a little over the week, with the 10-year yield on US Treasuries currently trading at 2.02%, UK Gilts 0.83% and German Bunds minus 0.32%.  Gold rallied 1.2%, currently trading at $1,417 an ounce, benefitting from expectations of a US interest rate cut and early signs of US dollar weakness.  Crude oil rallied, as it was announced that the US has tightened sanctions on Iran, with Brent currently trading at $66.5 and WTI (West Texas Intermediate) $59.4 a barrel.

The G20 talks in Osaka begin today, with the US having threatened to apply an additional US$300bn worth of tariffs on Chinese goods if a deal is not reached.  During the week the South China Morning Post reported that the two sides were close to at least agreeing a truce to avoid the application of additional tariffs. Whilst the Wall Street Journal reported that China is insisting that the US lifts its ban on telecoms equipment company Huawei. Despite their differences, the US Treasury Secretary, Steven Mnuchin, told CNBC that they “were about 90% of the way there and I think there’s a path to complete this”.  Whether it is concluded or not, it is not expected to be the end of the trade war, with other countries due to be dragged in over the rest of the year.

The third reading of US GDP growth came in at an unadjusted 3.1%, however, data releases continue to suggest that the US economy is slowing, with US durable goods orders for May falling by 1.3%, much worse than forecast.  In support of this weakening picture of global growth, the latest European economic sentiment indicator came in at three year low.


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