-
""

Markets Weekly

14 June 2019

Week ahead

Summer is around the corner but markets are no place for holidays, with a data-heavy economic calendar already lined up for next week.

All eyes will be on next week’s US Federal Reserve meeting as markets price in impending rate cuts after escalating trade tensions and disappointing US jobs market data, despite the economy remaining in good shape. Investors will also gauge the health of the US housing market following weak home purchases in April.

In the eurozone, the focus will be on economic sentiment readings and consumer confidence for June after markets turned more pessimistic on the back of heightened protectionism fears. Meanwhile, the Harmonised Indices of Consumer Prices inflation for May should remain low amid softer domestic conditions.

The Markit flash purchasing managers’ index (PMI) for both the eurozone and US will indicate the resilience of business activity in the two regions. The PMIs previously recorded a decline in manufacturing, while services largely held up.

UK inflation readings will be in the spotlight with more evidence of a tight labour market, after average weekly wages expanded more than expected in the three months to April. The Bank of England will monitor this data closely ahead of its policy meeting next week, with the central bank likely to reiterate its recent hawkish tone despite Brexit uncertainty.

Chart of the week

Rate markets imply a US recession

Intensifying trade tensions and signs that the global economy has peaked, led to increased expectations that the US Federal Reserve (Fed) will cut rates very soon to prevent a severe downturn in the US economy. Recent commentary from Fed members suggests that the Fed now sympathises with these preventive steps while the rate market already seems to be three steps ahead.

Fed fund futures, which allow investors to hedge themselves against future rate moves, are pricing in a target rate of approximately 50 basis points (bps) lower by the end of December and approximately 75bps lower by the middle of next year – essentially two to three cuts. Just a week ago the market was priced for three to four cuts. This would imply that the Fed will enter into a cycle of cuts without economic data pointing to a recession.

Trade tensions have the potential to dampen the economic growth. But, cutting rates by 75 or even 100 bps at an early stage, and simply on the back of trade tensions, may lead to another policy error should the economy stay stable longer than the market believes. That said, the Fed should be concerned about inflation and inflation expectations. The target rate of 2% currently seems at risk of being breached, which would support for a rate cut itself. A discussion about what a neutral inflation point is in the future is another one to have certainly.

 

Chart of the week

Previous editions of Markets Weekly

Investments can fall as well as rise in value. Your capital or the income generated from your investment may be at risk.

This document has been issued by the Investments division at Barclays Private Banking and Overseas Services (“PBOS”) division and is not a product of the Barclays Research department. Any views expressed may differ from those of Barclays Research. All opinions and estimates included in this document constitute our judgment as of the date of the document and may be subject to change without notice. No representation is made as to the accuracy of the assumptions made within, or completeness of, any modeling, scenario analysis or back-testing.

Barclays is not responsible for information stated to be obtained or derived from third party sources or statistical services, and we do not guarantee the information’s accuracy which may be incomplete or condensed.

This document has been prepared for information purposes only and does not constitute a prospectus, an offer, invitation or solicitation to buy or sell securities and is not intended to provide the sole basis for any evaluation of the securities or any other instrument, which may be discussed in it.

Any offer or entry into any transaction requires Barclays’ subsequent formal agreement which will be subject to internal approvals and execution of binding transaction documents. Any past or simulated past performance including back-testing, modeling or scenario analysis contained herein does not predict and is no indication as to future performance. The value of any investment may also fluctuate as a result of market changes.

Neither Barclays, its affiliates nor any of its directors, officers, employees, representatives or agents, accepts any liability whatsoever for any direct, indirect or consequential losses (in contract, tort or otherwise) arising from the use of this communication or its contents or reliance on the information contained herein, except to the extent this would be prohibited by law or regulation..

This document and the information contained herein may only be distributed and published in jurisdictions in which such distribution and publication is permitted.  You may not distribute this document, in whole or part, without our prior, express written permission. Law or regulation in certain countries may restrict the manner of distribution of this document and persons who come into possession of this document are required to inform themselves of and observe such restrictions.

The contents herein do not constitute investment, legal, tax, accounting or other advice. You should consider your own financial situation, objectives and needs, and conduct your own independent investigation and assessment of the contents of this document, including obtaining investment, legal, tax, accounting and such other advice as you consider necessary or appropriate, before making any investment or other decision.

THIS COMMUNICATION IS PROVIDED FOR INFORMATION PURPOSES ONLY AND IS SUBJECT TO CHANGE. IT IS INDICATIVE ONLY AND IS NOT BINDING.