The week in equities was marked by steady gains in U.S. and European markets as at the end of the week oil prices improved after an agreement was reached between Opec members to increase production.
This was welcome as the early part of the week was on the back foot as the world worried about the risk of a trade war. Trade was still casting a shadow at the end of the week as on Friday, retaliatory tariffs from the EU came into effect covering products from Bourbon, Orange Juice and Motor Cycles. This was the response to President Trump’s decision to impose a 25% tariff on steel and aluminium products from the EU as well as Canada and Mexico.
However, stock-market leaders have yet to be undercut by trade-war fears; in this latest round of trade arguments, we have seen less impact on both investor sentiment and stock prices than might be expected. This is supported by the double-digit gains for the Nasdaq and modest but positive returns for the S&P 500 so far this year.
Large-capitalisation technology and internet stocks continue to set new records. Meanwhile, small-cap stocks, a group reliant on the domestic economy and somewhat insulated from trade woes, rallied to all-time highs in the past week.
German government securities were unphased by the first rise in the Eurozone’s composite PMI in June for the first time in five months.
Greek debt rallied when it was announced that Eurozone creditors had pushed back repayment deadlines on‚ 100 Billion of bailout loans. The final installment of the bailout money was also increased.
The U.S. Treasury yield curve flattened as the T2 rose by 5bps where as the T5, 10 and 30 all saw yields fall. The charts below illustrate the dramatic rise in the T2 yield and the T2/10 spread since the Fed began to normalize rates.
The Euro rose on Friday, buoyed by data showing that Q2 growth is likely to have been solid and by fresh assurances from Italy’s new government that the country would not leave the Eurozone.
The single currency received an additional boost after Greece secured debt relief and a cash infusion from the Eurozone- once again reality is denied, and repayments are kicked down the road into the long grass.
EURUSD was up 0.44% to 1.1654 in late trade, for a weekly gain of 0.39%.
The gains in the Euro pressured the Dollar lower. The U.S. Dollar Index was down 0.37% at 94.19 late Friday and for the week, the index was down 0.63%.
Despite its gains, the Euro remains vulnerable to political instability in the Eurozone and ongoing trade tensions.
The Dollar was almost unchanged against the Yen late Friday, with USDJPY at 109.96. For the week, the pair was down 0.61%.
Sterling rose to one-week highs on Friday, a day after a more hawkish Bank of England revived expectations for an August rate hike, but fears over a fresh period of uncertainty in Brexit negotiations checked gains. GBPUSD hit a high of 1.3315 before pulling back to 1.3263 in late trade.
Metals:
Gold looks likely to remain vulnerable amid worries over higher U.S. interest rates boosting Treasury yields, after registering a second weekly decline last week, ending close to its lowest levels since December.
Gold futures (August) delivery added 60 cents to settle at $1,271.10 on the Comex division of the New York Mercantile Exchange late Friday. For the week, prices were down 0.56%.
Silver futures settled +0.79% at $16.45/Troy Oz, to end the week almost unchanged. Platinum settled at $878.70, up 1.7%, bringing the week’s losses to 1.07%.
Among base metals, copper for May delivery was slightly higher at $3.033 in late trade for a weekly decline of 3.44%. Copper prices were pressured as trade tensions between the U.S. and China continued to escalate, fueling fears that protectionist trade policies will slow the global economy and weaken demand.
Oil:
Opec and other non-Open oil producers announced that they would boost production by 1 million barrels per day in an attempt to reduce the “over-compliance” with the original limit agreement. Oil prices gained as this increase was less than had been feared.
Economic Calendar, all times are BST:
U.S. inflation data will be in focus this week with the Federal Reserve having already flagged four interest rate hikes this year. The Fed’s preferred inflation measure; the core PCE price index is due on Friday.
The third reading on first quarter U.S. GDP is due the day before and there will also be data on durable goods orders and consumer sentiment.
The Eurozone is to release a preliminary inflation estimate on Friday, while EU leaders are to hold a two-day summit in Brussels, which gets underway on Thursday.
| Time | Cur. | Imp. | Event | Actual | Forecast | Previous |
| Monday, June 25, 2018 | ||||||
| 9:00 | EUR | German Ifo Business Climate Index | 101.9 | 102.2 | ||
| 15:00 | USD | New Home Sales (May) | 667K | 662K | ||
| Tuesday, June 26, 2018 | ||||||
| 15:00 | USD | CB Consumer Confidence (Jun) | 128 | 128 | ||
| Wednesday, June 27, 2018 | ||||||
| 9:30 | GBP | BoE Gov Carney Speaks | ||||
| 13:30 | USD | Core Durable Goods Orders (MoM) (May) | 0.40% | 0.90% | ||
| 15:00 | USD | Pending Home Sales (MoM) (May) | 0.60% | -1.30% | ||
| 15:30 | USD | Crude Oil Inventories | -5.914M | |||
| Thursday, June 28, 2018 | ||||||
| Tentative | EUR | EU Leaders Summit | ||||
| 13:30 | USD | GDP (QoQ) (Q1) | 2.20% | 2.20% | ||
| Friday, June 29, 2018 | ||||||
| 8:55 | EUR | German Unemployment Change (Jun) | -8K | -11K | ||
| 9:30 | GBP | GDP (YoY) (Q1) | 1.20% | 1.20% | ||
| 9:30 | GBP | GDP (QoQ) (Q1) | 0.10% | 0.10% | ||
| 10:00 | EUR | CPI (YoY) (Jun) | 2.00% | 1.90% | ||
| Tentative | EUR | EU Leaders Summit | ||||
