The United States S&P 500 index hit an intraday all-time high this week and set the record for the longest bull run ever, surpassing the 1990-2000 technology driven bull market. However, political events in Washington came into focus as Michael Cohen, President Trump’s long-standing lawyer, pleaded guilty to arranging payments “at the direction” of Trump, during the 2016 Presidential campaign to silence two women who allegedly had affairs with the President. The US dollar, having been on a tear since mid-April, fell as much as 1.2% versus a basket of internationally traded currencies, before clawing back some of the losses by Friday.
In equity markets, US stocks, as measured by the S&P 500, also ended the week down 0.4% as of Friday, 12pm London time, whilst the technology focused Nasdaq index rose 0.7%. Dollar weakness provided some respite for emerging markets, which rose 1.9%. The Eurostoxx 50 rose 1.7%, whilst the UK’s FTSE All Share was a relative laggard, rising 0.4%, suffering from a jump in Sterling. Japanese Topix rose 0.8%, aided by Yen weakness.
The pressure mounted on President Trump this week, as on the same day that Michael Cohen pleaded guilty, Paul Manafort, Trump’s former presidential campaign manager, was found guilty of tax evasion and bank fraud. Despite this, consensus opinion still seems to be of the view that Trump is more likely to be brought down by politics, i.e. the upcoming mid-term elections, than by the legal system. By the end of the week, investors’ attention was increasingly turning towards an upcoming speech by Jerome Powell, US Federal Reserve Chairman, at the central bankers’ annual symposium in Jackson Hole, Wyoming. Markets are looking for insights into the pace of US rate rises. However, it is expected he will reiterate that the gradual pace of rate hikes remains appropriate, despite Trump expressing his dislike earlier in the week.
This week both the US and China implemented 25% tariffs on $16bn of each other’s goods, despite negotiations having resumed between both countries. Nonetheless, the Shanghai Composite index rose 4.2% over the week and the Hong Kong Hang Seng rose 2%. Both markets were boosted by news that the People’s Bank of China (PBoC) injected $21.6bn into the banking system through loans to commercial banks on Friday, in an effort to combat a slowing economy. What will be of greater concern to markets is how China might react to the US’s latest threat: tariffs on a further $200bn of Chinese imports.
Sterling jumped at the beginning of the week as Dominic Raab suggested it unlikely that the UK leave the European Union without any deal. Sterling briefly went through $1.29 to the dollar and almost regained €1.12 to the Euro, before dropping back towards the end of the week as the government released contingency guidance for a “no-deal” Brexit scenario. Sterling is currently trading at $1.28 versus the dollar and €1.10 to the Euro.
The oil price strengthened this week, with Brent crude jumping 5% to $75 a barrel following the US Energy Information Administration reporting a drop in crude oil inventories of 5.8m barrels versus forecasts of a fall of 1.5m barrels. This boosted energy stocks and further helped Latin America, with the Brazilian Ibovespa index rising 3.4% over the week.
Both the Australian dollar and equities fell over the week as parliament was adjourned for yet another leadership challenge against the Prime Minister, Malcolm Turnbull. The ruling Liberal party is sharply divided between its conservatives and moderates, which has prevented a coherent strategy being formed in key policy areas. On Friday, Scott Morrison won the contest to become Australia’s sixth prime minister in just over a decade. The Australian S&P/ASX 200 was down 0.6% for the week.
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