G7, politics and trade
As equity markets mull the prospect of another negative week for European stocks, with the exception of the FTSE100, the upcoming G7 meeting is likely to be one of those 'fly on the wall' meetings that could see a lot of plain speaking take place in the wake of President Trump’s decision to implement the promised tariffs on steel and aluminium.
Is Trump’s assertiveness part of a wider strategy to show he is even handed with both friend and foe, before walking things back next week, or are we really looking at a full blown trade war?
While there has been plenty of talk about retaliation politicians will need to tread carefully to avoid an escalation, if Trump doubles down and targets the German car industry as part of his section 232 investigation into car imports into the US. The new populist Italian government is also likely to be represented at the G7 given the recent agreement between the League and Five Star which needs to be ratified by both Italian parliaments in the coming week. While markets heaved a sigh of relief that we won’t be facing imminent new elections that relief could well be short-lived if, as expected the new government seeks to implement its controversial new tax and spend program, bringing into conflict with Brussels, or falls out over how it is implemented.
RBA rate decision/AUD Q1 GDP – 05/06
The recovery being seen in the latest economic data from China is likely to be a net positive for the Australian economy, while the recent decline in the Australian dollarr is a welcome relief for the Australian central bank. In a worrying sign we have been seeing some signs of economic weakness with softening house prices as well as stagnant wages growth. This would suggest that the RBA is likely to remain on the side-lines this week, particularly since the Australian economy is showing little signs of overheating.
Services PMIs (May) – 05/06
There has been an expectation that after a soft Q1, after a strong performance in 2017 that we could expect to see pickup in European services PMI’s in Q2. Thus far we’ve seen little indication that this is happening. The latest flash numbers from France and Germany pointed to an even sharper slowdown in May. If these are confirmed this week then we could find expectations of a dialling back of stimulus by the European Central Bank pushed back into next year. It’s been a similar story in the UK though there has been some evidence of a pickup in May, particularly since the Royal Wedding is likely to have offered a boost in tourist numbers.
China Trade (May) – 05/06
After a slowdown in exports in March the Chinese economy showed signs of picking up in April, with a significant pick up in both imports and export growth. This suggests that after a slow start that and maybe some disruption as a result of Chinese New Year that economic activity is normalising. There is still some concern that economic activity might be affected by the uncertainty over US/China trade talks, however China’s export activity should give a decent indication as to whether global demand is picking up again.
AO World FY18 – 05/06
On line white goods retailer Ao World(LON:AO) (LON:AO) has struggled to deliver on expectations since its IPO back in 2015, struggling to make a profit as it takes on the traditional retailers in both its UK and European markets. The company has yet to make an annual profit however there are signs that progress is being made in terms of increasing revenues in both of its core markets. Despite the progress being made it is hard to see whether further gains are justified given that the share price is up over 45% year to date.
Workspace Group FY18 – 06/06
One of the success stories of the past few years, Workspace Group is one of London’s leading providers of office and studio space, and despite the brief slump in the aftermath of the Brexit vote and worries in the commercial property sector the share price has continued to make its way higher, up over 70% since those July 2016 lows.
At its half year update at the end of last year the company reported profits of £123.7m and also raised its dividend. The demand for flexible office space has helped drive the company’s growth over the past few years, however there is a risk that with the London property market starting to show signs of cooling that we could well see a downgrading of expectations over the next 12 months. The total value of its property portfolio was estimated at £2.1bn in November last year, so it will be interesting to note whether this has been adjusted lower in this week’s full year numbers, given the company’s concentration on the London market.
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