Market Update

While global events and politics have been hectic and generally unfavorable this week, financial markets have shifted their attention from inflation to the prospect of a recession, resulting in an overall uptick in markets. Many key markets closed the week in positive territory.
Winston Churchill's quote, "If you're going through hell, keep going," is a fitting starting point for this week's update. For months, UK Prime Minister Boris Johnson faced calls for his resignation and votes of no confidence in his leadership. Following the resignations of key cabinet members Rishi Sunak and Sajid Javid, followed by approximately 60 more MPs, it appeared for a brief period that Boris Johnson would persevere. However, it was announced on Thursday that he had resigned as Prime Minister of the UK. While we await news of candidates for the premiership, any observable impact on markets is unlikely amidst this leadership turmoil. As an aside, it has been widely reported on social media that Larry, the Downing Street cat, will remain in Number 10.
Turning our attention beyond the UK, senior representatives from the US and China held talks this week to discuss tariffs on Chinese imports. There are reports that the US government is contemplating rolling back some of these sanctions on Chinese goods, which could alleviate some of the inflationary pressures in the US.
Additionally, it was reported this week that China's Ministry of Finance is considering issuing 1.5 trillion yuan in bonds in the second half of the year, with the funds earmarked for infrastructure spending. As we've long stated, China possesses ample monetary policy tools to support its economy, making it one of the most attractive regions for global investment. This move is likely to stimulate growth in the region.
Chinese Services PMI for June exceeded expectations, registering at 54.5, well into expansionary territory, defying forecasts of contraction. This data signifies that China, the world's second-largest economy, is gradually recovering from the impact of lockdowns.
Minutes from the recent Federal Open Market Committee meeting were released this week. While the minutes indicated an inclination to continue raising interest rates, they were overshadowed by more recent concerns about a potential technical recession in the US. If a recession looms in the US, it could exacerbate deflationary pressures and prompt a slower pace of interest rate hikes, as the central bank would be keen to avert a severe economic downturn.
At the week's end, the tragic shooting and killing of former Japanese Prime Minister Shinzo Abe occurred at a political campaign event. This assassination of the longest-serving prime minister in Japanese history has shocked the world. It marks an unprecedented attack on such a high-profile individual, and the use of a firearm in the act is highly unusual in Japan. Both the currency and the markets have experienced some uncertainty, as the attack is seen as an assault on his monetary policy legacy. Abe was a staunch advocate of Bank of Japan monetary policy and was globally renowned for his economic strategy, known as Abenomics.