Your quarterly market review

Trade wars, the continued Brexit
debate and strong share prices have been the headlines over the last few weeks.

In your quarterly update, we look back
at the major economic stories of the past three months and review the latest
market data.

UK

Despite the continued uncertainty surrounding the UK’s
exit from the European Union, shares performed well in the second quarter.
Overall, the FTSE rose by 2%, from 7279.19 in April to a close of 7425.63 at
the end of June.

The technology sector enjoyed another quarter of strong performance,
as did several large consumer goods companies, which are perceived to have
dependable growth prospects.

The ongoing issues surrounding negotiating the UK’s
withdrawal from the EU finally put pay to Theresa May’s tenure as Prime
Minister. May officially left the role on 7 June, and now it’s a battle between
Boris Johnson and Jeremy Hunt for the leadership of both party and country.

With both candidates increasing the rhetoric surrounding
leaving the UK ‘do or die’, the likelihood of a disorderly ‘no deal’ Brexit has
increased in recent weeks as the UK approaches the new 31 October deadline.

While GDP grew by 0.5% in the first quarter of 2019, the Office
for National Statistics (ONS) revealed that the economy shrank by 0.4% in April,
primarily due to a sharp fall in car production related to Brexit uncertainty. In
addition, Markit’s UK manufacturing Purchasing Managers’ Index (PMI) for May
slipped below 50 (the level which separates expansion from contraction) for the
first time in three years.

Continued struggles on the UK’s high streets were also a
feature of Q2. Debenhams finally slipped into pre-pack administration in April,
with the retailer announcing proposals to close 50 stores with the loss of
4,000 jobs.

Jamie Oliver’s chain of 22 Italian
restaurants collapsed in May resulting in 1,000 job losses, while fashion
retailer Select also fell into administration, putting its 169 stores at risk.

Other major retailers have been
saved by eleventh-hour deals. Sir Philip Green’s Arcadia Group narrowly avoided
collapse in June (although 50 stores will close) while Monsoon Accessorize has
asked landlords to reduce rents on more than half of its 258 leased stores. Health
and beauty giant Boots has also announced store closure plans, with 200 high
street locations set to go in a cost-cutting exercise.

There was more bad news for two
of the UK’s most popular retailers in April as the Competition and Markets Authority (CMA) blocked the
proposed merger between Sainsbury’s and Asda.

Stuart McIntosh, the chair of the CMA inquiry group, said:
“It’s our responsibility to protect the millions of people who shop at
Sainsbury’s and Asda every week. We have found this deal would lead to
increased prices, reduced quality and choice of products, or a poorer shopping
experience for all of their UK shoppers.”

The
news saw Sainsbury’s share price fall to its lowest level since the 1980s.

Europe

Mixed
economic data from Europe in the second quarter suggests that confidence
remains downbeat.

While
June’s PMI surveys suggest that economic growth picked up as we approached the
half year, they suggest that GDP rose by just 0.2% in the second quarter.
Worried about trade tariffs, geopolitical uncertainty and slowing economic growth
are concerns, with only modest expansions expected in the major economies of
France, Germany and Spain. The Italian economy is on course for a decline in
GDP in Q2.

Year-on-year orders in German factories are down by
8.6%, the worst drop since 2009. Combined with the weakest June performance in
the labour market since 2002 and disappointing retail sales, there are fears
that a recession could be around the corner.

US

Despite
a significant wobble in May, US shares gained ground in the second quarter. The
S&P 500 reached a new record high towards the end of June and, overall, US stocks rose
3.7% in the second quarter of 2019.

The continuing threat of trade tariffs did result in a
sell-off in May, most notably when President Trump threatened to impose blanket
tariffs on Mexican imports if the authorities did not do more to stem illegal
migration into the US. The threat appeared to be enough, but a lack of progress
on the migration issue could see blanket tariffs being introduced later this
year.

US
GDP grew 3.1% in the first quarter of 2019, while the unemployment rate remained
stable at a 49-year low of 3.6%. However, confidence is fragile and while the
Fed did not cut rates at its June meeting, the ‘dot plot’ signals that cuts may
not be too long in coming.

Asia

Shares
in Asia reported modest losses in the second quarter as markets in the region
recorded mixed performances. The MSCI Asia ex Japan index
underperformed the MSCI World index (its global equivalent) while Japanese
share prices fell by 2.4% over the quarter.

Trade tensions once again were a major factor, most notably the
escalation in the trade war between the US and China. May saw the US raise
tariffs on $200 billion worth of Chinese imports and add the world’s biggest
telecoms provider, Huawei, to a trade blacklist. China countered with
retaliatory tariffs on US goods.

In India, an unexpectedly large majority for incumbent Prime Minister
Narendra Modi’s Bharatiya Janata Party (BJP) sent Indian stock markets to a
record high. The Sensex topped 40,000 for the first time in its history, while
the country’s other stock market, the Nifty, also hit a record high.

However, this surge could represent a false dawn in the world’s sixth
largest economy. An employment
survey report that was leaked to the press suggested that India’s state of
unemployment is at a record 45-year high, while a leading economist has
suggested that India’s gross domestic product (GDP) is currently being
overstated by about 2.5% annually.

Please note

The value of your investment can go down as
well as up and you may not get back the full amount you invested. Past
performance is not a reliable indicator of future performance. Investing in
shares should be regarded as a long-term investment and should fit in with your
overall attitude to risk and financial circumstances.