Market Flash: Each week at the moment looks like the last

Each week at the moment looks like the last. Investors are split between persistently good fundamentals and trade tariff developments. Sentiment picked up in the previous week on news that auto industry talks were to be held but then Donald Trump said he would be adding another $200bn in Chinese imports to be taxed after Beijing reacted to the first tariffs becoming effective on July 6. The move looked discounted and talks could be held before this additional amount comes into force, but equity markets still saw some big drops and the renminbi weakened. The NATO summit opened at the same time amid fears the US president would remain on the offensive

The same split can be seen in economic data. On the one hand, the NFIB small and medium sized company index in the US remained at lofty levels while investor sentiment in July’s ZEW survey in Germany fell. Meanwhile, th e earnings season looks promising. US companies are expected to see profits rise by more than 20% compared to the second quarter of 2017 while European company earnings are seen rising by close to 9%. Company statements and guidance when figures are reported will be scrutinized to assess the initial microeconomic impacts of trade war fears.

Against this backdrop, we continue to maintain a slight pro-risk asset bias - but with less geographical distinctions - and have used options to hedge against any possible peaks in volatility. As for government bonds, we continue to believe that interest rate risk in core Eurozone countries offers very poor rewards and that investors should steer clear.