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The week in review by Ari Towli and Nick Stanhope 27.07.18

Article first published on: 07/27/18 10:13:am

Markets and key events

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Stocks finished the week on an optimistic note, especially in Europe after the US and EU managed to defuse trade tensions on Thursday.

Prior to the meeting, US President Donald Trump had been deeply critical of the EU and described the union as a “foe”, regarding trade. However, after Jean-Claude Junker, President of the European Commission met with President Trump, both sides managed to avoid an all-out trade war, with the US dropping its threat to impose tariffs on imported European cars and car parts. As of 12pm London time, the Eurostoxx 600 is higher by 0.4% on Friday alone.

In other news, as quarterly company results season is well underway, there was particular focus on some of the biggest technology companies this week, including Amazon, Google and Facebook, who all released their quarterly earnings results. Results have been mixed; Google’s parent company, Alphabet, climbed 4% on Monday after better than expected earnings, whilst Amazon produced its first $2.5 billion quarterly profit in its history, helped by the dominance of its online retail business and the company’s diversification into cloud computing.

However, on Thursday, Facebook’s shares dramatically declined by 20%, after the company warned of slowing user and sales growth. Overnight the tech heavy Nasdaq was dragged 1.4% lower given Facebook’s travails.

Europe

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This week, the ECB (European Central Bank) monetary policy meeting was uneventful, with the Central Bank leaving key interest rates on hold.

The main refinancing rate is unchanged at zero, whilst the levy charged on the portion of private lenders’ deposits parked at central banks across the European region remains at 0.4%. The Central Bank also reaffirmed its forward guidance on monetary stimulus.

The ECB will halve monthly asset purchases after September and eventually stop purchases all together in December. At the time of the meeting, the Euro remained flat against the dollar at $1.17, down just 0.3% on Thursday.

Asia Pacific

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In Asia, Chinese stocks started the week stronger after the People’s Bank of China injected $74 billion into the banking system via loans to commercial banks.

The Shanghai Composite advanced approximately 1.6% overnight on Monday, and this move by the bank is the latest sign that China is easing monetary policy to combat a slowing economy. China’s onshore Renminbi weakened to a one year low of RMB 6.824 per US Dollar.

In Australia, the S&P/ASX 200 rose marginally higher over the week by 0.23%.

Materials and miners were notable beneficiaries over the period, with the sector up by 2%. They were helped by base metal prices which are recovering from heavy losses two weeks ago, on the back of trade tensions. Miner BHP Billiton lifted 4.5% aided by the sale of its US onshore oil and gas assets for $10.5 billion. Rio Tinto shares also rose 1.6% while South32 shares closed the week 2.5% higher.

Fixed Income

Away from equity markets, moves in Japanese Government bond yields dominated headlines this week. On Monday, 10-year Japanese Government Bond (JGB) yields, which move inversely to their bond price, rose to their highest level in nearly 6 months after reports that the country’s central bank was considering adjusting its current ultra-loose monetary policy stance. With the Federal Reserve tightening monetary policy and the European Central Bank planning to end quantitative easing by the end of the year, this leaves the Bank of Japan as one of the few major central banks maintaining a loose monetary policy.

As a result of the speculation, 10-year JGB yields climbed 6 basis points to 0.09%, their biggest move since August 2016. The selloff in JGBs also prompted moves in equivalent 10-year US and German government bonds, with yields on both benchmark bonds rising higher by 7 basis points and 3 basis points respectively.

Commodities

Supply concerns in the Middle East lifted oil prices by 1.57% on Wednesday. This came after Saudi Arabia's Energy Minister said the world's top exporter was "temporarily halting" all oil shipments through the Red Sea, following attacks from Yemeni Houthi rebel on two of its giant crude carriers. This move will likely to slow delivery to key markets in Europe and North America. As of 12pm London time, Brent crude is trading at $74.47 per barrel.


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