Investors bask in a sunny week for markets

Key takeaways

The sunny mood among investors continued last week, as the Israel-Iran ceasefire held, and the US and China announced new trade terms.

A trade deal with China is welcome news for US tech firms…
Investors have been watching and waiting for more details on a trade deal between the US and China, which finally began to appear last week. The most recent news pointed to an agreement which will speed up shipments of Chinese-produced rare earths to the US. These minerals are crucial to the US tech industry, so investors welcomed not only the progress in trade talks but also the potential security provided to a powerful US engine for growth.

… but Canada re-enters the stage for fresh tariff drama
Despite developments between the US and China, tariff drama held on to the headlines over the weekend. In a last-minute debacle, Canada scrapped a planned digital services tax on US tech firms, which was due to come into force on Monday 30 July, reigniting hostilities following weeks of truce. The last-minute change of heart was an overt attempt by Canadian leaders to smooth relations with their neighbour to the south, and was only announced after President Trump threatened to terminate trade talks.

Figures still suggest that the US economy is slowing down
In our last Weekly Bulletin, we highlighted that central bankers would be watching closely for the economic signals provided by so-called ‘hard’ data (official evidence measuring important economic statistics). Last week, hard data in the form of inflation figures for the US were released, with an update to the Personal Consumption Expenditures (PCE) index. This is the preferred measure of inflation used by the US central bank, the Federal Reserve (Fed), and it showed that inflation had risen by slightly more than expected in May. However, beneath the headline numbers, it also showed that retail sales and food services had weakened. Given the US economy’s heavy reliance on its consumers, the Fed will have received this news warily, and it could encourage the bank to make interest rate cuts sooner rather than later in an effort to boost economic activity. Signals from bond markets suggest that bond investors expect rate cuts sooner too.

Market moves

• Stock market prices rose last week, as investors were heartened by better geopolitical news. The US market, measured by the S&P 500 Index, reached a new all-time high (in US dollar terms).

• It was quite an upbeat week for bonds too, as signs of economic weakness encouraged hopes for interest rate cuts soon, which boosted government bond prices in both the US and UK.

What to look out for this week

• Expect more political theatre in the US, where President Trump’s tax bill is currently wending its way through the political system ahead of Friday’s Independence Day – a US national holiday.

• Economic figures due to be released over the course of the week include more inflation data in Europe and the latest monthly employment news from the US.

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