The week in markets – May 24th

by May 24, 2017

The market view

Cryptocurrencies are all the rage right now as Bitcoin and other spin-offs including Ethereum hit highs once again.

Recent data from Google Trends indicated that Bitcoin made the top 5 Google search requests on Monday this week. This could be partly down to the fact that the minds behind the global malware attack that began on May 12th demanded ransom payment in Bitcoin – creating plenty of publicity for the cryptocurrency. Due to the surge in popularity, prices have sky-rocketed once more as investors pile in on what some are calling a modern day ‘gold rush’. The results from the US indicate that ‘Bitcoin’ received over 200,000 searches. Ethereum made the top 20 results, coming in at number 18.

In Britain as election day approaches, the gap between the two biggest parties, Labour and the Conservatives, is narrowing significantly. Investors may have to start pondering the possibility of a government led by Jeremy Corbyn, one which will undoubtedly aim to place higher tax burdens on wealthy individuals and corporations. This might be morally appropriate, but whether it will put off businesses looking to invest in the UK is yet to be seen. One thing we do know for sure is that the Pound is still highly sensitive to political volatility, and an unexpected win for Labour might spark another selloff of the currency. Despite a rally in popularity amongst voters, investors had been expecting a clear Conservative majority, consolidating Theresa May’s power and allowing her to pursue her Brexit strategy with minimal interference. However, if a Labour government is elected in June, this may throw a spanner in the works, forcing a rethink of the British position on UK/EU negotiations.

In the US, defence stocks got a nice boost earlier in the week after new arms deals between the US, Saudi Arabia and other gulf states were signed over the weekend. The Trump trip to Saudi Arabia was his first official state visit since becoming President, and signalled happy days for the military industrial complex, but scandal in Washington is still causing concern. A recent poll from news outlet Reuters showed a slim majority of economists questioned believe that there is a lower probability that the US economy will grow 3% in 2017, as hopes for tax cuts and other pro-growth policies have become overshadowed by other political concerns. In other news concerning Gulf states, the price of oil climbed yet again ahead of another OPEC meeting Thursday. Brent crude prices already peaked above $54 a barrel slightly earlier in May, but many investors are wondering whether it can climb higher off the back of a certified agreement to more production cuts from major oil producing nations including Iraq and Saudi Arabia.

In Asia, Moody’s ratings agency has downgraded China’s credit rating – the first downgrade of it’s kind in 25 years. Chinese officials are reportedly skeptical about the announcement, believing that the risks to the economy in the future are overstated. However, despite the fact that the Chinese economy has been a major success story in recent years (while other major economies suffered and stagnated), they have a major debt crisis to contend with. Signs point to a changing attitude in China towards trade, with it’s leader Xi Jinping speaking at Davos earlier this year denouncing trade barriers, tariffs and protectionism. However, many foreign investors into China still say that the country is not as open to foreign investment as it would like to pretend despite it’s move towards a more western capitalist style of economy. Even if it were true that China’s government are reforming the economy further, this will not stop the debt rising, Moody’s wrote: “While ongoing progress on reforms is likely to transform the economy and financial system over time, it is not likely to prevent a further material rise in economy-wide debt, and the consequent increase in contingent liabilities for the government”. Chinese foreign direct investment fell 4.3% in April, according to the Chinese Ministry of Commerce.

Events to watch this week

  • Thursday – OPEC meet in Vienna to discuss whether to continue oil production cuts. Watch #brent #wtoil. UK GDP figures are released for Q1. Watch #GBP/USD #GBP/EUR.
  • Friday – Japan CPI for April. Watch #JPY/USD. Baker-Hughes oil rig count. Watch #brent #wtoil.

Upcoming Company Results

  • Thursday – Best Buy, Costco Wholesale, Gamestop, Hormel, Dollar Tree, Patterson, Medtronic, Tate & Lyle, United Utilities, QinetiQ, Halfords, Pets At Home.
  • Friday – Coal India.

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