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Weekly Bulletin: Financial markets wary as US-China tensions rise

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Investment Team

5 min read

In a muted week for global stock markets, poor economic data and acrimonious US-China relations held centre stage.  The oil price regained some of the ground lost in April, but a rising gold price underscored investor nerves.

Market update and economic developments

Financial markets seemed slightly more uneasy last week, as economic data indicating the true magnitude of the global pandemic begins to emerge, and fresh tensions between the US and China continued to unfold.

  • March figures from the UK’s Office for National Statistics showed that just nine days of lockdown conditions at the end of the month led economic output to fall by 5.8% versus February. Over the first three months of the year, the economy contracted by 1.6% (versus Q1 2019). Underlying these headline figures, the services, production and construction sectors saw record declines. Given that the UK has remained in lockdown conditions for the first six weeks (and counting) of the new financial quarter, economic growth figures for Q2 2020 are likely to be dire.

  • Meanwhile, the genie is well and truly out of the bottle for COVID-19, with second wave outbreaks now in evidence in a number of areas of the globe which had begun to open up. Lockdown conditions are being eased at a mixed pace around the world, but in the UK the government is struggling to reverse its ‘stay at home’ message in small phases. More encouragingly, a vaccine trial in Oxford has produced some promising initial results.

  • Across the Atlantic, the White House is ratchetting up its rhetoric against China, particularly regarding the origins and initial handling of the COVID-19 outbreak. US economic data has been incredibly poor amid the pandemic, with almost 3 million US citizens filing for unemployment benefits, and industrial production delivering its worst monthly reading since records began. President Trump has claimed that he will restrict the supply of US semiconductors to Chinese telecommunications giant Huawei.

  • In the US presidential race, the latest polls suggest that Trump is also losing ground to his challenger, Joe Biden, ahead of November’s election. If there is a link between Trump’s polling position and his increased pressure on China (i.e. a distraction or rallying tactic), we should expect rising US-China tensions for at least as long as Biden remains in the lead.

What to look out for this week

  • A number of central bankers (including US Federal Reserve Chair Powell) are due to speak throughout the week. Given the very accommodative measures already in place, investors will be watching closely to discern any potential next steps.

  • Survey data covering manufacturing and services sectors from around the world is due for release towards the end of the week. The results could give an indication of how regional economies are faring.

Weekly market moves

  • Most major stock markets around the world recorded losses last week. For UK investors, a weaker sterling tempered losses from overseas assets (due to the translation effects of their stronger base currencies).

  • Against this backdrop, gold (a traditional ‘safe haven’ asset) moved up to price levels last seen in 2012.

  • The oil price continued to regain some of its composure following a chaotic late April for US oil in particular.

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Investment Team

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