MARKET UPDATE: DOVISH FEDERAL RESERVE BOOSTS US EQUITIES

LAST WEEK – KEY TAKEAWAYS

MARKETS: FED’S DOVISH TONE BUOYS EQUITIES

• US equities rallied after chairman Jay Powell said the Federal Reserve was prepared to cut interest rates to support the US economy and offset the impact of trade tensions with China;
• Earlier in the week, the prospect of antitrust investigations into Facebook, Apple, Amazon and Google parent Alphabet had weighed on the market.
• Omnis view: The likelihood of a rate cut increased on Friday as the number of jobs added by the US labour market in May fell well below forecasts and wage growth stalled.

Performance of the S&P500 for the week commencing 3rd June 2019 (source: ft.com)

TRADE: US DELAYS TARIFFS ON CHINESE GOODS

• There was further good news for US equities as the White House extended the deadline for an increase in tariffs on Chinese goods until 15th June;
• Meanwhile, the US and Mexico agreed on measures to reduce illegal immigration, and President Trump suspended the tariffs he threatened to impose on Mexican goods.
• Omnis view: Data released on Thursday, showing a fall in US exports and imports in April (and paradoxically a wider trade deficit in goods with China), may put pressure on President Trump to find a resolution when he meets with his Chinese counterpart Xi Jinping at the G20 meeting at the end of June.

EUROPE: EUROPEAN EQUITIES RALLY AS ECB HOLDS RATES

• European equities rose after the European Central Bank (ECB) pledged to keep interest rates at the current level until the middle of 2020 at the earliest;
• In other European news, Italian assets were under pressure as the EU accused Italy of failing to meet targets for cutting public spending and warned the country was on course to breach budget deficit rules in 2020.
• Omnis view: The markets should welcome ECB president Mario Draghi’s pledge to use any tools at its disposal to support the European economy, including rate cuts and further quantitative easing.

LOOKING AHEAD – TALKING POINTS

ECONOMIC DATA

• Tuesday- UK unemployment rate and earnings in April;
• Wednesday- Chinese inflation rate in May; US inflation rate in May.

POLITICS

• The Conservative party leadership contest starts today after Theresa May officially stepped down on Friday.

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This update reflects Omnis’ view at the time of writing and is subject to change.

The document is for informational purposes only and is not investment advice. We recommend you discuss any investment decisions with your Openwork financial adviser. Omnis is unable to provide investment advice. Every effort is made to ensure the accuracy of the information but no assurance or warranties are given.