Graduate Market Update

Foreign Exchange

The dollar suffered its worst week in more than a year, wiping out all its gains since Donald Trump was elected US president, as investors fretted that a growing White House scandal could hit Trump and Republican plans to boost the economy i.e. a reduced chance of major pro-growth Trump reforms as Trump’s woes could ‘gridlock’ the legislative process . At the heart of political concerns were claims that the president had attempted to interfere in an FBI investigation into former national security advisor Michael Flyn sparking talk of possible Trump impeachment proceedings.

The index measuring the dollar was heading for a weekly fall of 2 per cent, the biggest drop since April 2016.The dollar’s fall helped the pound move above $1.30 for the first time since September and Euro hitting $1.12 for the first time since November, helped by this month’s victory for Emmanuel Macron in France’s presidential election.

Global Equities

Wednesday last week we saw the biggest drop in the S&P 500 index in eight months. However, share prices recovered at the end of last week as the dollar’s weakness provides a boost to US exporters. Despite US policy uncertainty and questions now on the ability of Trump to enact his pro-growth policies (lowers taxes/ increased infrastructure spending/less industry regulation) equity markets have been fairly calm and remain close to all-time highs. This is perhaps because the so-called “Trump trade” has in reality not been the major driver of markets for some months. Rather it is the fact that the global economy finally looks in decent, if unimpressive shape, and corporate earnings are healthy.

Interest Rates

Moreover, as a further support to asset prices, the Federal Reserve is raising interest rates slowly and other central banks e.g. European Central Bank, Bank of England, Bank of Japan are still buying a mind-boggling amount of financial assets. Already this year they will have bought $1.2 trillion of securities, and if that pace is maintained it will be another record year for quantitative easing.  Even an impeachment of Mr Trump, which still looks unlikely, will be unable to rattle these fundamental truths.

Fixed Income

Investors buy safe haven assets such as gold and government bonds in times of uncertainty so there was strong buying of all government bond markets last week. The US 10-year bond yield tumbled 12 basis points (0.12 of 1%) last Wednesday to 2.25% (yields down equals prices up). Given the 10-year yield reached 2.63 per cent earlier in 2017, US bonds have performed well over last couple of months as the “Trump trade” appeal has faded. The key European benchmark German 10-year German bond yield is 0.37%

Commodities

Oil had a strong week after Russia and Saudi Arabia announced they had agreed to extend their production cuts by nine months. Brent oil is again now above $50 per barrel at $53.50.

Gold is also performing well in the current uncertain climate rising $24 on the week to $1,252 per ounce. Gold was also supported by the weaker dollar, since, as the dollar fell this week, and with gold being priced in dollars, in order for gold to maintain its value in real terms, its price must rise.

Note: UK manufacturing order books improved further in April to reach a level last seem more than 2 years ago according to the respected Confederation of British Industry – CBI survey as the UK economy continues to cope surprisingly well post last June’s Brexit vote.

 

Equities

S&P 500: 2400

Nasdaq: 6000

FTSE 100: 7500

Bonds – 10 Year Government Yields

US 2.25%

EU 0.37%

GB 1.10%

Foreign Exchange 

EUR/USD  1.1200 (1 euro buys 1.1200 dollars)

GBP/USD  1.2900 (1 pound buys 1.2900 dollars)

Commodities

OIL: Brent: 54.00 (dollars per barrel)

GOLD: 1280 (dollars per ounce)

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About Paul McCormick

Paul McCormick is the founder of Opening City Doors and is a Financial Market Specialist having worked for several leading Investment Banks and financial technology institutions additionally.He therefore provides a unique insight, and unusually broad perspective, into the opportunities available in London Financial Markets and related sectors and how to launch your career in the ‘City’.