Week ending 26th April 2019.

It has been an interesting week for global markets with pockets of news sprouting up everywhere!

On Monday we saw the Trump administration announce that it would no longer grant oil import waivers to the 8 countries (including India and China) that were allowed to consume oil from Iran following the 2018 sanctions imposed on Iran for ignoring a nuclear agreement/pact. The current waivers are due to expire in May, and whilst the majority of the 8 exempt nations have reduced their Iranian oil consumption to 0% over the past 6 months, India and China still procure 5% and 6% respectively of their oil from Iran. As India tends to ‘march to the beat of its own drum’ and China being the second largest economy in the world and is currently in trade negotiations with the US, it is uncertain how they will react once the waivers have been removed… but the reality is, whilst this was taken as a shock to the oil market earlier in the week (seeing Brent Crude spike at over $74 per barrel), the current consumption levels from Iran for India/China are low in relative terms and levels can still be sourced elsewhere. So, whilst the oil market reaction seemed quite sharp, this was driven by sentiment, and it’s not likely we are going to see $100 a barrel any time soon!

Midweek we saw a host of news, with India, now halfway through their election process, conducting its third round of voting. The voting process is not due to conclude until the middle of May. In addition to this, the Brazilian Lower House of Congress declared President Bolsonaro’s much needed pension reform bill as constitutional, and whilst there are many more votes to have over the coming months, this is an immense step towards addressing the country’s deficit. Elsewhere, we saw Russian President Vladimir Putin host North Korean leader Kim Jong-Un on Wednesday. This meeting follows the collapse of talks between North Korea and the US earlier in the year, as Kim looks to rally support of the relaxation of the current sanctions imposed on his country. Whilst there has been little by way of detail surrounding the meeting between Kim and Putin, Putin confirmed that the United States and Russia had a common interest in preventing nuclear proliferation in North Korea and elsewhere, but that any agreement would ensure that North Korea’s “sovereignty would be preserved” which alleviates tensions globally.

UK Chancellor, Phillip Hammond, testified to the Treasury Committee for the Spring Statement on Wednesday before flying out to Beijing to attend China’s ‘Belt and Road Initiative’ forum. The UK is a backer of China’s long term trading route plans and is joined at the forum by a host of other Western World representatives such as Italy’s Prime Minister, Giuseppe Conte, as well as ministerial representatives from Germany, France and Spain. Whilst the West is split on the initiative, the momentum that the Chinese-led plan is gathering is putting pressure on the White House and could aid in the bilateral trade negotiations between the US and China. In the Chinese Premier, Xi Jinping’s speech at the forum today he appeared to make some concessions to the US (Donald Trump was not in attendance), suggesting a trade agreement is closer than expected between the two largest economies and that perhaps Xi is now putting an emphasis on the ‘Belt and Road’ initiative to seal trade ties elsewhere… either way, this is a good sign for both markets and longer term global growth!

In terms of data, on Thursday the Bank of Japan kept interest rates unchanged at -0.1%. The Bank stated that it would remain ultra-accommodative, keeping rates low until at least 2020 suggesting that inflation will likely sit below its 2% target until at least 2022. This was followed on Friday by Japanese Jobs data that saw the jobless rate increase to 2.5% and the ‘job to applicant’ ratio remain at the high of 1.63. Whilst Japanese retail sales beat expectations, industrial production data missed targets by 0.8%, contracting at a rate of 4.6%.

On Friday, US GDP came in at 3.2% for the first quarter, smashing the expectation of 2.3%. Whilst this figure is slightly inflated due to supply chain buffering from last quarter and is not likely to be replicated next quarter, it suggests growth is still robust and represents a marker from the world’s largest economy that brushes off any immediate concerns of a recession. Friday also saw the release of Disney’s Avengers: Endgame… and for those of you who were as frustrated as I was with how the first instalment ended, this 3 hour epic has been a long time coming!!

Jonathan Wiseman, Fund Manager