Market SummaryAsia
Asian markets kicked the previous week off with gains, ignoring the fiasco of the G7 meetings and focusing instead on the upcoming central bank monetary policy statements. Unfortunately, most markets across the region didn’t react well to the U.S. interest rate hike, or to news that the ECB would be ending their bond purchases by the end of 2018 but keeping interest rates unchanged until at least summer 2019. The Australian S&P/ASX 200 led the region, gaining 0.8% for the week as commodities rallied late in the week in response to central bank moves. Japan’s Nikkei wasn’t far behind, gaining 0.7% in response to weakness from the Yen against the USD. Mainland China saw the Shanghai Composite fall for the fourth consecutive week, ending lower by 1.8%; and in Hong Kong the Hang Seng lost 2.1% as both markets continued to see pressure from U.S. tariffs on Chinese imports. Rounding the region out was the Kospi in South Korea, which was 2.0% lower.
The coming week is quiet at the start in terms of economic reports, but markets could extend their Friday moves, with China and Hong Kong falling in response to the $50 billion in U.S. tariffs approved last week. Australia should see continued gains on the heels of rising commodity prices; and the lack of risk currently should help the Yen soften, which will lift Japanese markets. By late in the week investors will be digesting a host of central banker speeches and extensive readings of global activity, which could very well introduce volatility to Asian markets.
Europe
European markets had a bit of a choppy week, but still had weekly gains by the close Friday. The week got off to a good start before markets paused ahead of the dual U.S. and European Union central bank meetings. An interest rate hike in the U.S. and news of the schedule for the end of the ECB’s bond buying program sent stocks sharply higher Thursday; but they came crashing back on Friday after the U.S. implemented tariffs against Chinese imports, reigniting fears of a trade war. Markets still kept weekly gains though, with the Stoxx Europe 600 and French CAC 40 up 1.0% for the week, while Germany’s DAX clearly outperformed as it rose 1.9%. British investors weren’t as lucky, with a 1.7% drop on Friday giving the FTSE a 0.6% weekly loss.
The coming week will no doubt continue to feature concerns over an escalating trade war. This may well be exacerbated by ECB president Mario Draghi, who is scheduled to speak Monday, Tuesday and Wednesday. It could also be exacerbated by U.S. President Trump, who is rumored to be considering an additional $100 billion in import tariffs against China. Considering the reaction to the $50 billion in tariffs this past week, investors aren’t likely to respond well to double that amount, especially if they come in retaliation for the Chinese retaliating to U.S. tariffs. President Trump has been quoted as saying this won’t be a trade war, but it certainly sounds like one to us.
US
U.S. markets got off to a quiet start last week as investors were awaiting the Wednesday release of the latest monetary policy statement from the Federal Reserve. When the Fed hiked interest rates. as expected. markets were unfazed, but stocks fell on the more aggressive forecast of a total of four interest rate hikes by the end of 2018. By the end of the week the S&P 500 was nearly unchanged, while the Dow Industrials fell 0.9%. The Nasdaq outperformed on strength from the technology sector, gaining 1.9% for the week.
Investors are likely to remain cautious as the week begins, with the threat of an additional $100 billion in import tariffs for Chinese products hanging over the global trade picture. That threat of a trade war could keep pressure on stocks as the week begins, as there is little else for investors to focus on until later in the week when unemployment and PMI data is released.
Gold/Crude Oil
Gold traded back and forth over the $1,300 level throughout most of last week, not even reacting to the U.S. and European central bank decisions. That all came to an end on Friday, however, as the U.S. dollar Index hit an eleven month high. Traders decided that was more important than the rising risk aversion, and sent gold plummeting Friday, giving the precious metal a 1.9% weekly loss and a close far below the $1,300 level. It’s questionable if the downdraft will continue into the coming week, or if gold will rebound as risk aversion builds. The U.S. dollar has come off its highs already, which could give gold a boost when markets open Monday.
Crude climbed for four consecutive sessions last week before getting hammered lower on Friday, giving the U.S. benchmark contract a roughly 1% weekly loss. The coming week is likely to be just as volatile for crude as Friday’s loss came on fears that OPEC may raise production levels when they meet on June 22.