Weekly Market Insight - June 25th 2018

Jun 25, 2018 Written by Gavin Pannu, MSTA, CFTe

The stock market ended the prior week higher with oil stocks leading the gains after oil producers agreed on a deal to raise production. Major oil-producing countries agreed to increase global output by 1% in the coming months which was less than initially expected. This decision was reached by the Organization of Petroleum Exporting Countries and Russia on Friday.

The idea of pumping additional oil into the market had gained traction as oil prices have risen in recent months. OPEC’s biggest producer, Saudi Arabia, has argued that this trend must be kept in order to preserve global economic growth. To ramp up production to the 2016 target, OPEC countries will have to pump an additional 700,000 barrels per day. The market will now consider the possible implications of Iran pulling out of the nuclear agreement, following the U.S withdrawal. Expect updates on the nuclear agreement through the week, a lack of progress is positive for crude and safe havens.

President Trump increased tariffs to $200bn of Chinese goods after China launched retaliatory action against the US’s initial trade tariff earlier in the week. The administration had previously unveiled tariffs on Chinese imports worth $50bn. This will come into effect on the 6th of July.

The UK government’s Brexit bill passed through Parliament after Prime Minister Theresa May saw off a revolt by Tory MPs. Peers accepted the amendment to the EU Withdrawal Bill sent to them from the House of Commons, meaning the bill now becomes law. President of the European Commission Jean-Claude Junker said that Ireland will come first in the Brexit negotiations, and its border with Europe is a priority.

European markets received a boost after finance ministers from 19 nations committed to plans to get Greece out of its eight-year bailout program and a top lawmaker in Italy’s far-right League party reported the government will not want to exit the euro. But the U.S administration’s trade war could impact the Eurozone, with the EU now facing the prospect of tariffs on auto exports into the U.S. The weekend election in Turkey has seen President Erdogan win as expected, with changes being implemented which will ensure he holds substantially more powers and for an unlimited term.

Sterling rallied as trader’s priced in a 66% probability of a UK interest rate rise after the recent meeting minutes from the Bank of England’s committee. The BOE’s MPC member Andy Haldane joined dissenters voting for a quarter-point rise in rates. The committee voted 6:3 to keep rates on hold. In addition to this hawkish signal, the BOE agreed to start unwinding its £435bn quantitative easing programme earlier than expected.

Looking ahead

Asian markets traded in the red at the start of this week. Further Trade war fears escalate the global risk sentiment in the markets. The US Administration is preparing to restrict Chinese investments into US business. This week’s data, traders should monitor the US consumer confidence, spending and income data. For the Eurozone and Japan, we have inflation reports to be released. For the Kiwi, RBNZ will carry out its policy rate decision.