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Markets opened the week with some relief. Over the weekend, President Trump had cancelled his plan to impose a 5% tariff on all imports from Mexico. Or had he? By Monday, the president renewed the threat of tariffs in a tweet, unless Mexico ratified another portion of an immigration and security deal.
To appease Trump, Mexico had initially agreed to deploy its new National Guard on its southern border. This was in an attempt to prevent Central American immigrants from passing through its territory to the US. This week, some conciliatory statements seemed to settle the matter – for now at least. Overall, investors seemed content that this latest twist in the trade war appeared to have been untangled.
Mergers and acquisitions may have helped. Two examples are United Technologies and Raytheon’s $120 billion merger (although Trump and major shareholders are not happy) and Salesforce’s $15.7 billion takeover of Tableau Software. The S&P 500 had a bumpy ride over the week but finished up 0.9% by Thursday’s close.
One factor in the S&P’s gains was Thursday’s reported attack on two oil tankers in the Gulf of Oman. The incidents prompted a surge in the oil price and, consequently, in the price of energy stocks. Both vessels were evacuated with no loss of life. The attacks on the Norwegian and Japanese tankers follow the sabotage of four ships in the United Arab Emirates port of Fujairah last month.
The US has accused Iran of orchestrating the attacks. Representatives of the Tehran administration have denied any involvement.
Frayed in Hong Kong
In Hong Kong, there were widespread street protests against the further erosion of democracy by the Chinese authorities. The protests forced the delay to a controversial extradition bill that would enable Hong Kong residents to come under the jurisdiction of mainland Chinese courts. The police response escalated to the use of tear gas and rubber bullets after hundreds of thousands of demonstrators took to the streets.
On the Chinese mainland, investors took heart from fresh stimulus measures unveiled by the authorities in Beijing. On Tuesday, the A-share market made its largest one-day gains for over a month. The CSI 300 was up 3.4% by Thursday’s close.
In Europe, markets rose at the start of the week before slumping on Thursday. Overall, the FTSE World Europe ex UK index was up 0.9% over the first four days of the week. It was a busy week for corporate activity. French technology company Dassault Systemes is to pay $5.7 billion for Medidata Solutions, a US company that analyses clinical trials. Another French company, industrial-equipment distributor Loxam, offered a $1.1 billion public tender for Finnish competitor Ramirent. Meanwhile, Ryanair added Malta Air to its fleet of European subsidiaries.
President Trump also turned his attention to Europe this week. He threatened to impose sanctions on Germany over its support for Russia’s Nord Stream 2 pipeline, a route which will bypass the Baltic countries, Ukraine and Belarus and allow Russia gas to be carried directly to Germany. While this threatens Trump’s relations with Vladimir Putin, the US also has an eye on exporting more liquefied natural gas to Europe.
In the UK, there was evidence that Brexit is beginning to bite. Figures released this week showed that industrial production fell by 2.7% in April while manufacturing contracted by 3.9%. The pre-Brexit stockpiling appears to be over, with companies now running down their inventories. Meanwhile, UK GDP registered a month-on-month decline of 0.4%; this was largely due to cuts in car production. More positively, unemployment held steady at 3.8%. And, in one bit of bright news on the Brexit front, the UK signed a trade deal with South Korea.
Brexit blues continued to beset domestically focused companies. Ferguson, a distributor of plumbing products, missed expectations in its third-quarter revenues. Crest Nicholson, a housebuilder, fell short of consensus expectations in its first-half profits.
But despite the gloom in the mid-cap market, the FTSE 100 had a good week, closing up 0.6% by Thursday’s close. Along with the rising oil price, a slump in sterling played a part in this, as the substantial overseas earnings of FTSE constituents are amplified by a weaker pound.
And finally …
Another week, another world record? Twenty-one-year-old US citizen Lexie Alford may have become the youngest person ever to visit every single country in the world – all 196 of them! By her own admission, having your parents own a travel agency certainly helps.
When Lexie was born, East Timor, Montenegro and South Sudan didn’t even exist as sovereign nations. The last country on her list was North Korea, which she crossed off at the end of May. Her advice for achieving such goals? Don’t spend your money on unnecessary material possessions.