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MARKET UPDATE: STERLING SUBDUED AS BORIS TAKES POWER

LAST WEEK – KEY TAKEAWAYS

UK: BORIS JOHNSON BECOMES PRIME MINISTER

• Boris Johnson won the race to replace Theresa May as Prime Minister and Conservative party leader, winning nearly double the number of votes than his rival, former foreign secretary Jeremy Hunt;
• Sterling’s reaction to Boris’ victory was relatively subdued- weakness against the US dollar later in the week was driven by encouraging US economic data (see below).
• Omnis view: Throughout his campaign, Boris insisted the UK would stick to the latest Article 50 deadline and leave the EU on 31st October with or without a deal. While it is still early days, he appears to be maintaining this hardline rhetoric now he is Prime Minister.

US: ECONOMY BEATS FORECASTS IN SECOND QUARTER

• US equities rallied and the dollar strengthened against other major currencies as the country’s economy beat expectations to grow by 2.1% in the second quarter .
• Omnis view: Better than expected economic growth is unlikely to deter the Federal Reserve from cutting interest rates by 0.25% at its meeting this week.

CORPORATE EARNINGS: MIXED RESULTS FROM TECH STOCKS

• There was more good news for US equities as Facebook and Alphabet (parent company of Google) beat earnings forecasts in the second quarter, although Amazon fell short of expectations due to costs associated with cutting delivery times;
• Meanwhile, shares in industry bellwether Caterpillar dropped after it missed earnings expectations due to a fall in demand from the energy sector.
• Omnis view: According to FactSet, 44% of companies listed on the S&P 500 have reported second-quarter results so far, and 77% have beaten expectations. However, the firm is still forecasting an overall decline of 2.6%. Omnis 270719

EUROPE: ECB HINTS AT CUTTING RATES

• The European Central Bank (ECB) left interest rates unchanged at its latest meeting, but president Mario Draghi said officials are considering various stimulus measures to support the region’s struggling economy.
• Omnis view: Draghi’s comments raised the prospect of the ECB cutting rates and launching further rounds of quantitative easing at its next meeting in September.

LOOKING AHEAD – TALKING POINTS

ECONOMIC DATA

• Tuesday- Japanese unemployment rate in June;
• Wednesday- EU unemployment rate in June;
• Friday- US non-farm payrolls and average earnings in July; US imports, exports and balance of trade in June.

MONETARY POLICY

• Tuesday- Bank of Japan interest rate decision;
• Wednesday- Federal Reserve interest rate decision;
• Thursday- Bank of England interest rate decision.

TRADE

• Trade talks between the US and China resume in Shanghai on Tuesday.

CORPORATE EARNINGS

• Apple is the last of the FAANG group of tech stocks to report second-quarter earnings, along with several of the UK’s biggest banks.

Omnis Investments is now tweeting daily updates. Follow us at: @OmnisInvest

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.

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