Asia
The final week of June, and of the second quarter of 2018, was not a strong one for the Asian region, with markets falling broadly all week long. The catalyst for the sell-off in equities was the continued trade tension between the U.S. and China. Most markets across the region booked four out of five falling sessions, but the final session of the week was strong, especially for Chinese linked markets. On a weekly basis the Shanghai Composite on mainland China led losses as it fell 1.4% for the week. Both the Hang Seng in Hong Kong and the Kospi in South Korea finished 1.3% lower for the week. In Japan, the Nikkei suffered from Yen strength early in the week, which also led to a weekly loss of 0.9%, as it never really gained any upward momentum and finished most days relatively flat. Australia’s S&P/ASX 200 pulled off its ten-year high and lost 0.5% for the week.
The coming week could be just as bad for Asian markets as nothing has changed fundamentally in the trade picture. If anything, we could expect a worsening, as Chinese President Xi Jinping last week hinted at Chinese retaliation to the U.S. trade tariffs, and President Trump is known for shocking markets with new announcements over the weekend. So, chances are we’ll see continued weakness from China, Hong Kong and South Korea, while Australia could have a chance to move higher if commodities rally. Japan’s investors seem to be waiting on the sidelines to see how trade tariffs will affect them.
Europe
European markets finished a pretty dismal week with a strong Friday, but it wasn’t nearly enough to erase weekly losses for most markets. The Stoxx Europe 600 lost 1.3% for the week, and the German DAX and French CAC 40 both fell 1.2%. London’s FTSE managed to make it back to positive territory for the week, gaining 0.2% after Friday’s gain. Other than a sharp decline on Monday, the FTSE saw support from energy and commodity shares throughout the week. The Stoxx Europe 600 did perform well for the quarter, however, gaining 2.4% in the second quarter and erasing roughly half of its 4.7% first-quarter loss.
The coming week could be better if trade concerns remain on the back burner. European policy makers came to a resolution on the issue of refugee immigration, which had been putting extreme pressure on Germany’s Angela Merkel. With that out of the way, there is little geopolitical risk at this time, although events could blow up again in Italy at any time. Germany remains very vulnerable to the threat of U.S. tariffs on European products but has also been making outsized gains when trade issues recede.
US
U.S. markets struggled just as much as other global markets last week as investors were no longer able to overlook the U.S. trade policies’ effect on markets. The uncertainty not only caused volatility, but also weekly losses for major indices. By the end of the week the S&P 500 and Dow Industrials both lost 1.3%, but the technology heavy Nasdaq underperformed with a loss of 2.4%. Technology was under pressure for most of the week as investors were worried that President Trump would sign an executive order blocking Chinese companies from investing in U.S. tech firms.
The worries of an executive order against Chinese technology was put to rest after the White House announced such issues would be handled through existing laws. That helped technology at the end of last week and should help it as the new week kicks off. Oil and energy should be watched closely as well, with crude currently trading at its highest level since November 2014. Any signs that supply is firming or demand is softer than thought could send crude skidding, but with the current sentiment in place, crude is well placed to make additional gains.
Gold/Crude Oil
Oil climbed higher unhihindered last week, hitting new highs in session after session as traders bet on demand growing and supply disruptions from the Middle East and Venezuela continuing. By the end of the week crude remained at its highest level since November 2014, gaining 8.1% for the week. Having a gain that large in the coming week isn’t likely, so we could see smaller daily gains, or increased volatility with large swings. Our analysts are expecting the latter, with changing trader sentiment driving the daily volatility in the coming week.
After gold broke and fell through the $1,300 level to settle at $1,275 the week before last, it was the beginning of the current downward move for the precious metal. Since that break gold has been unable to mount much upward momentum, even in the face of a weaker U.S. dollar. Friday was the only rising session last week, and gold lost 1.2%. The coming week shouldn’t see any better results for gold. Risk aversion has receded, if anything; and while the U.S. dollar was extremely weak on Friday, boosting gold slightly, that degree of weakness in the USD isn’t expected to continue.