June Market Commentary


May was a relatively quiet month, virtually nothing of any importance happened at all. Well, apart from the European elections, Theresa May’s decision to stand down and the re-escalation of the US/China trade war. Not content with that, Donald Trump imposed tariffs on Mexico and Angela Merkel decided that her potential successor wasn’t up to the job and that she’d stay on as German Chancellor. As we said, a relatively quiet month…

As far as world stock markets were concerned, the main news was, of course, the US/China trade war. The talks aimed at ending the dispute stalled, Donald Trump re-imposed tariffs on $200bn of Chinese goods and all the leading markets fell back on the news. The only bright spot was in emerging markets, with India, Russia and Brazil all making gains during the month.


Just before the European elections, Theresa May announced her intention to stand down as Prime Minister and the race is now on to succeed her. Former Foreign Secretary Boris Johnson is the early favourite, in a field which contains roughly as many runners and riders as the Epsom Derby.

Had Theresa May not announced her decision to step down, the results in the European elections would surely have sealed her fate, as the Conservatives finished in fifth place, with just 9.1% of the vote and four MEPs. The Brexit Party was the comfortable winner with 31.6% and – along with Angela Merkel’s CDU – is now the largest single party in the European Parliament. The elections also saw good results for the Liberal Democrats – and their famous campaign slogan – and the Green Party.

In other news, there was the customary high street/shopping outlet gloom with the highest profile failure being Jamie Oliver’s chain of Italian restaurants. Of greater long-term impact may be Boots’ decision to review the future of 200 stores and the stated plans of Marks and Spencer to close ‘more’ stores – although the number is still unspecified.

Thomas Cook revealed a loss of £1.45bn which saw its shares fall by 40% – although some analysts went further, describing the shares as ‘worthless.’ To complete the gloom, retail shop vacancies are at a four year high.

Away from the high street there was plenty of good news, as the UK economy grew by 0.5% in the first quarter and the Bank of England raised its growth forecast for the year from 1.2% to 1.5% – although it did warn that interest rate rises might become more frequent. For now, the bank base rate remains on hold at 0.75%.

Both wages and employment were up in the first quarter, with the employment rate of 76.1% the joint-highest ever recorded.

Controversial Chinese telecoms company Huawei announced plans for a chip plant near Cambridge which will create 400 jobs and Facebook selected London for its new WhatsApp payments centre. But this news was put into sharp relief when British Steel went into administration, putting 4,000 jobs directly at risk plus thousands more in the company’s supply chain.

Inevitably this news – plus the US/China dispute and the continuing Brexit uncertainty – pushed both shares and the pound down in the month. The FTSE 100 index of leading shares closed the month down 3% at 7,162 while the pound was down by a similar amount against the dollar, closing May at $1.2633.


The ‘Brexit’ section of the Bulletin made its first appearance in April 2017. Here’s what we wrote at the time:

Even after the [General] Election result is known it remains to be seen whether any genuine progress will be made before the summer holidays and the subsequent German elections in September. With 22 months to go to the March 2019 deadline, it’s easy to see the negotiations being concluded in one very late night sitting on 28th March 2019…

So we were right about the negotiations not being concluded swiftly – and wrong about them being concluded by March 2019.

After any number of votes and – apparently – hustings up and down the country, we will supposedly have a new Prime Minister by the end of July. But where do we go from there? As MEP Daniel Hannan pointed out, any new Conservative leader faces an immediate Catch-22: ‘We (the Conservatives) cannot face the electorate before leaving the EU. But we might not be able to leave the EU without an election.’

There is also the time factor. A new leader will emerge by the end of July but August is largely lost to holidays and we then have the party conference season. It leaves precious little time to negotiate with the EU, even assuming the EU is prepared to negotiate.


In many ways, the elections for the European parliament produced the same results in Europe as in the UK: there were impressive results for nationalist parties and the Greens, and the parties which have traditionally formed the ‘Grand Coalition’ – the Centre-Right and Centre-Left groupings – saw their numbers significantly reduced.

In Germany, Angela Merkel’s CDU slipped from 35% of the vote in 2014 to 28%, with the centre-left Social Democrats faring even worse as their vote fell from 27% to 15.5%. The right wing AfD won 11% of the vote – perhaps not doing quite as well as expected – but the Greens had an excellent result, easily taking second place with 20.5%.

In France, Marine Le Pen’s National Rally party defeated Emmanuel Macron – who had campaigned on his personal vision of an even more integrated Europe – by 24% to 22.5%.
In Italy, Deputy Prime Minister Matteo Salvini stated that “Europe is changing” as his populist League party won 35% of the vote to comfortably top the poll. There were also nationalist gains in both Hungary and Poland, while in Greece, the ruling Syriza party was well beaten, prompting Prime Minister Alexis Tsipras to call an early general election (which the Athens stock market seemed to approve of, as it rose 7% in the month to close at 830).

What of other news in Europe? Growth in the Eurozone in the first quarter of the year was 0.4%, but business confidence was reported to have ‘crumbled’ according to a survey of more than 1,400 chief financial officers by Deloittes. Across the Eurozone, 65% reported the level of uncertainty as ‘high’ or ‘very high,’ with the US/China trade dispute and Brexit cited as the main reasons. Unsurprisingly, the highest figure was recorded in the UK, with the lowest in Norway.

That confidence cannot have been helped at the end of the month when several newspapers reported that Italy was preparing its own ‘parallel currency.’ “I do not govern a country on its knees,” said Matteo Salvini, in what is being seen as a direct challenge to the authority of the EU. Together with other Eurosceptic parties, Salvini has more than 40% of the popular vote. Is the parallel currency the first step in taking Italy out of the EU? Quite possibly.

As you would expect, both major European markets fell in May. The German DAX index was down 5% to 11,727 while the French index fell by 7% to close the month at 5,208.


The month started with President Trump – now an overwhelming favourite to win a second term next year – urging the Federal Reserve to cut American interest rates. It would help the economy ‘go up like a rocket’ tweeted the President.

In the event, strong labour data convinced the Fed to keep rates on hold as the US economy added 263,000 more jobs in April, with the unemployment rate now at its lowest since 1969.
The President continued to make the news – when does he not – as he declared a national emergency over IT threats to the US (with Google restricting Huawei’s use of Android) and finished the month by imposing tariffs on Mexican exports to the US. The tariffs would stay, he said, until “Mexico does something about immigration.”

In company news, May brought the long awaited stock market debut of Uber, which saw the company valued at $82bn (£65bn). This was at the lower end of expectations and the shares fell further when trading started. With the company posting a $1bn (£790m) loss at the end of the month you suspect that investors might be in for a bumpy ride.

Facebook announced plans to launch a cryptocurrency to rival Bitcoin and back in the old economy, Ford said that it would need to shed 7,000 jobs as it looked to cut costs. On Wall Street, the Dow Jones index inevitably fell in the month: it ended May down 7% at 24,815.

Far East

We have written above about the escalation of the trade war between the US and China and as we write this section of the Bulletin – on the morning of 1st June – China has just imposed tariffs of up to 25% on $60bn (£47bn) of US goods. US firms operating in China will also be fearing the inevitable retaliation as the US government continues to take action against Huawei.
To add to the worries of a slowdown, analysts have started to ask if ‘winter is coming’ to the booming Chinese tech sector, with electric vehicles, industrial robots and microchip production all slowing down recently. In addition, big companies like Alibaba, Tencent and Baidu have all cut jobs, with one in five Chinese tech companies now planning staff cuts.

There was much better news on the other side of the Sea of Japan, as the Japanese economy comfortably beat forecasts of a 0.2% contraction to grow at an annualised rate of 2.1% in the first three months of the year.

In company news, HSBC exceeded analysts’ expectations as its first quarter profits rose thanks to increased revenues from Asia, while Alibaba announced plans to raise up to $20bn (£15.8bn) by floating on the Hong Kong stock market.

Unsurprisingly, all the major stock markets in the region were depressed by the continuing trade war. Hong Kong was the worst affected, falling 9% to 26,901. The Japanese and South Korean markets were both down by 7% to 20,601 and 2,042 respectively, while China’s Shanghai Composite Index was down by 6% to end May at 2,899.

Emerging Markets

More than 600m people voted and the whole process took six weeks, but finally the votes were counted in the world’s biggest democracy and – as expected – Narendra Modi won a landslide victory to secure a second term as India’s Prime Minister.

One of the big questions is how Modi will handle the Indian economy. In his first term, India became the world’s fastest growing economy as he cut red tape and reformed the bankruptcy laws. But his biggest gamble, banning more than three-quarters of the notes in circulation in a bid to tackle corruption, backfired badly and delivered a significant blow to economic growth.

So what should we expect in his second term? Given his landslide victory, Modi will have the authority to make sweeping changes especially in a bid to tackle unemployment, which touched a 45 year high between 2016 and 2017. He will take measures to boost private investment, as well as supporting exports and manufacturing through his flagship ‘Made in India’ initiative.

In Brazil, the economic news was a lot less promising, as the first three months of the year saw the Brazilian economy contract for the first time since 2016. In the first quarter of the year, the economy contracted by 0.2% compared to the final quarter of 2018 – although it was up by 0.5% compared to the same period a year ago.

As new President Jair Bolsonaro tries to revive the economy, analysts are warning that Brazil could face another recession. This would come just three years after the 2015/2016 recession, which shrank the economy by 7%.

Despite this bad news, the Brazilian market still managed a gain of 1% in the month, closing May at 97,030. The Indian stock market rose 2% to 39,714 but the star performer this month was the Russian market, which rose 4% to finish the month at 2,665.

And finally…

According to a YouGov survey reported in City AM, the majority of people in the UK who use smart speakers are rude to them. 55% of us admit to being rude to poor old Alexa, while 7% of people shamefacedly admit to always being rude. Women fared better than men in the survey, with 45% of them claiming that they always say ‘please’ and ‘thank you’ to their virtual assistants. Men scored a miserable 30% on the politeness scale.

Elsewhere, in good news from the world of technology, a London company called Pavegen has developed paving slabs which harvest the kinetic energy of people walking and transform it into electricity. “People can participate in a greener, more sustainable future simply by walking,” said the company’s CEO.
Clearly a step towards combating global warming!

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