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Commentary on financial markets – May 2019


  • Trade wars
  • European Parliament elections


We ended our April commentary by considering whether the old stock market adage “sell in may and go away” will come true. The speculator who did so did very well, as the major stock markets lost significantly in May. And it was not only the stock markets that lost, the price of oil also fell sharply. Although gold fulfilled its fate as a negatively correlated (it usually rises when stocks fail and vice versa) commodity to the stock markets, it managed to strengthen only slightly.

The absolutely fundamental exchange rate driver in financial markets now is trade wars, especially the trade war between the US and China. The conflict between the two superpowers over the future arrangement of trade relations is not only continuing, but seems to be getting more heated. The situation escalated in May, when China announced retaliatory tariffs of USD 60 billion on US goods, which are due to come into force on 1 July 2019. The US President is therefore even considering imposing tariffs on all Chinese goods worth around USD 300 billion. In addition, the United States has blacklisted the Chinese company Huawei and has also imposed a trade embargo on the company’s suppliers. Just as US President Donald Trump is now fighting China, he is on the other hand trying to take a less confrontational approach to his ‘Western’ allies. Thus, the US has withdrawn tariffs on steel imports from Canada and Mexico and postponed the decision to impose tariffs on car imports. This is good news for the car industry, which incidentally is about to undergo another major merger, that of FCA and Renault. However, the tensions from the trade wars are still very strong, and perhaps the G20 leaders’ meeting at the end of June could bring about a shift in this backlash.

In Europe, the elections for the European Parliament have taken place and have dealt the cards for the next five years. The results of the elections across the EU are not easy to interpret, but a few trends can be traced. Firstly, the results do not represent any major reversal and can be interpreted as meaning that the EU will continue to develop in a similar way as before. The People’s Party and the Socialists still have the most, but they have lost their majority. On the other hand, however, the Eurosceptic parties represented by Nigel Farage (UK), Matteo Salvini (Italy) and Marine Le Pen (France) have made significant gains. This means that there will be more pressure to reform the European Union and it can be expected that individual nation states will want to strengthen their sovereignty and, in turn, the European Commission will be in a weaker position than before. A new trend, which the European elections have also shown, is a greater interest in environmental issues among young voters, from which the European Greens are benefiting (especially in Germany and France). It is impossible to predict today what the long-term consequences of the election result will be and how it will affect the performance of European equities, but it is clear that Europe has a major challenge ahead of it: it will try to be competitive on global markets, and better than in the last decade, when it was losing ground to the world and especially to the United States.

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