Market Update

This week, the UK media was abuzz with the change in government leadership, but its impact on global equity markets was limited. Investors remained focused on the European Central Bank's (ECB) monetary policy announcement and US economic data. Nonetheless, the UK's political landscape is worth noting as it sets the stage for the months ahead.
As anticipated, Boris Johnson assumed the role of leader of the Conservative Party, succeeding Theresa May as the UK's Prime Minister. One of his initial tasks was to form a new cabinet, resulting in significant changes with 18 out of 29 ministers being replaced. Key appointments included Sajid Javid as Chancellor of the Exchequer, Priti Patel as Home Secretary, and Dominic Raab as the new Foreign Secretary. Boris also assigned Michael Gove to intensify preparations for a no-deal Brexit, raising concerns about the possibility of such an outcome. This, along with the significantly pro-Brexit cabinet, led to a decline in the pound, closing at a two-year low against the US Dollar. UK politics will likely remain in the headlines as Boris navigates his new role and strives to deliver Brexit in one way or another.
In Europe, disappointing manufacturing Purchasing Managers' Index (PMI) data from France and Germany, along with Germany's IFO business climate index hitting a six-year low, underscored economic concerns. The ECB, in response to this forward-looking economic data, decided to keep monetary policy unchanged. This decision weighed on European equity markets and caused the Euro to reach a two-year low against the US Dollar.
While some investors may have been disappointed by the ECB's decision, the statement hinted at the possibility of lowering interest rates "until the middle of 2020." This open-ended approach suggests that the ECB might ease monetary policy at their next meeting. Additionally, during the press conference, ECB President Mario Draghi made several dovish remarks, reinforcing expectations of a policy response in September.
In the US, the GDP for the second quarter of 2019 surpassed expectations, reaching 2.1% on an annualized basis, thanks to stronger-than-anticipated consumer and government spending. However, challenges like decreased exports, declining inventories, and the first drop in business investment in three years indicated the impact of ongoing trade tensions on the economy. Investors remained hopeful that the Federal Reserve (Fed) would cut interest rates next week, despite the GDP figures beating consensus forecasts.
Next week, the focus will be on central banks, with the Fed expected to announce its first interest rate cut in over a decade, ranging from 0.25% to 0.50%. Market sentiment will be significantly influenced by the Fed's decision. Additionally, the UK and Japan will provide updates on their monetary policies, while trade talks between the US and China are set to resume. Amidst these events, several major companies worldwide will continue to release their half-year results, keeping investors closely engaged.