June was a mixed month on the world's stock exchanges. The USA was once again the focus of investor attention and the potential trade war was the all-important topic.
For the month as a whole, the US S&P 500 Index rose by 0.6 per cent measured in USD, while the European Stoxx 600 Index fell by 0.6 per cent measured in EUR and the Nordic VINX Index dropped by 1.2 per cent measured in NOK.
Fears of a trade war
While the fears for Italy and of inflation have partly been put on hold, the fear of a trade war is increasing in the financial markets. It is not a trade war between the USA and its allies regarding tariffs on steel and aluminium that is causing most concern, but one between the USA and China, two economic superpowers. In addition to the already announced introduction by both sides of USD 50 billion tariffs on goods, the rhetoric is now escalating. There has been talk of quadrupling this amount, and there have also been indications that Chinese investments in US companies will be restricted. Other news is that we have seen a clear fall in the Chinese currency and stock market. There is speculation that the currency fall is a deliberate move to counteract increased tariff rates introduced by the USA. The Chinese central bank's cut in its reserve requirements seems to indicate this.
The weakening of the Chinese currency must also be seen in connection with the generally stronger US dollar. Since April, the trade-weighted dollar has strengthened by all of 7 per cent. Better relative macroeconomic developments, a more restrictive monetary policy and general market fears are probably helping to strengthen the dollar. In addition, there has been an injection of capital from emerging economies.
The ECB extends QE
The US dollar's strength can also be partly explained by the weaker Euro. Despite previous expectations that the European Central Bank (ECB) would stop its quantitative easing programme in September, it was announced at an interest-rate meeting in June that there would be a further three months of money printing, with Euro 15 billion being issued each month. This, together with a slightly weaker macro impetus, has put pressure on the Euro.
The road ahead ...
We have behind us a volatile month and a volatile half-year. There are many indications that the stock market will fluctuate going forward too. At the same time, the underlying developments in the global economy are good. We are therefore entering the second half-year believing that the stock market as a whole will improve.
"I support free trade, and so does Donald Trump"