Market update (4 June 2018)

Last week President Trump accelerated his trade war rhetoric and market flows were to risk off assets. A 25% tariff on steel and 10% tariff on aluminium exports to the US from Canada, Mexico and the EU was announced. This will put pressure on Canada and Mexico to reform the North American Free Trade Agreement (NAFTA). Both Canada and Mexico responded with tariffs on US goods and the EU are contemplating measures they will take.

The political situation in Italy has caused some concern for the Eurozone, a populist government has been sworn in on Friday. President Sergio Mattarella agreed to a list of revised ministers after a fall out on the incoming leaders view on the euro ended the initial move to assume power.

Spain’s Prime Minister Mariano Rajoy lost a no-confidence vote which resulted in Socialist Party leader Pedro Sanchez to become the new Prime Minister. The vote of no confidence came after past corruption scandals which had involved Mariano Rajoy.

On the data front, UK consumer confidence rose in May which shows Britons seemed to be more upbeat about their own financial situation. In the US, jobs data showed an increase to new hires at 223,000 along with unemployment rate at its lowest in almost five decades. A key measure being monitored by the Federal Reserve showed an increase in average wage growth.

Monetary policy will continue to be in focus this week. Keep an eye on speakers through the week, Draghi and a number of central bankers are scheduled. Sentiment from the Bank of England may become hawkish should this week’s figures turn out positive. The European Central Bank may show dovish signs as uncertainty over trade tariffs and soft economic indicators. The Bank of Canada will need to consider how they will deal with trade tariff risks and no deal being met on NAFTA. The Federal Reserve are anticipated to raise rates this month, but with potential soft inflation numbers and trade war concerns which the US. economy is unlikely to benefit from, 4 rate hikes this year may be off the table.

OPEC has managed to show their dominance in price control from the US. Further announcements that OPEC and Russia may increase output towards the end of year could impact the price of oil. Any contradictory statements which were seen towards the end of last week of no increase to oil output will weigh heavily.