Equity markets succumbed to a broad sell off mid-way through the week as US Treasury yields moved sharply higher, following data from the US Institute for Supply Management (ISM) which showed record activity in the US services sector.
The US Federal Reserve (Fed) stuck to the playbook this week, raising US interest rates by 0.25%, taking the Federal Funds rate to 2.25%, whilst providing enough guidance to point towards a further rate rise in December. Despite the ratcheting up in President Trump’s global trade war, the Federal Reserve has yet to see any signs of tariff increases being passed on to consumers through higher prices.
Concerns over the possibility of President Trump imposing additional tariffs on $200bn worth of Chinese imports overshadowed markets this week, as the US government’s consultation period came to an end on Thursday.
Once again global trade set the tone for investors this week. At first, markets maintained their upbeat mood on the back of positive talks between Mexico and the US, in their efforts to revamp NAFTA (North American Free Trade Agreement).
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.
Stock markets continued to fall over the first half of this week as the fallout from Turkey’s currency crisis continued, before markets stabilised on news that China would restart stalled trade talks with the US later this month. Emerging markets fell 3.8%, EuroStoxx 600 fell 1.4%, UK’s FTSE All Share fell 1.5%, and the Japanese Topix fell 1.3%. However, following US company results, including Walmart’s, whose earnings rose at their fastest pace in more than 10 years, the S&P 500 recouped all its losses towards the end of the week, rising 0.3% as of 12pm London time on Friday, not far off its all-time high.
Despite a further escalation in the trade war between the United States (US) and China, most stock markets rose over the week as of 12pm London time, with the MSCI World rising 0.4%, the US Standard & Poor’s 500 index rising 0.5% and even the MSCI Emerging Markets index rising 0.5%.