We have seen an uptick in volatility. Hostilities between the US and China show no signs of abating. The US Federal Reserve minutes indicate that it is unlikely there will be rate moves of any kind for some time and, the UK have no leader, following the tearful resignation of Prime Minister, Theresa May, on Friday. It would be an understatement to say that last week was anything less than eventful with the Bank Holiday weekend in the UK providing some welcome respite for all.

On Friday, Theresa May resigned as the Prime Minister after failing to deliver her Brexit deal in her 3-year tenure. Mrs May’s departure will now lead to a chaotic Conservative race, where staunch ‘no-deal’ Boris Johnson is the clear favourite to succeed her; a new Prime Minister will be in situ by the end of July. Further compounding May’s sadness was the Conservatives defeat in the European Elections, which were held in the UK last Thursday. It was expected that the results would be disastrous for the Conservatives and they did not disappoint; Nigel Farage Brexit Party secured the majority vote of c.31% followed by the Liberal Democrats and Labour with c.20% and c.14% respectively. Conservatives limped in to 5th, behind the Green Party, with c.9% of votes. The UK, politically, will remain in an uncomfortable limbo.

Turning to trade wars, the question is; who is really winning? There is only one measure that shows if Trump is ‘winning’ and that is the bilateral trade balance, and while the global superpower that is the US is still lagging by a huge margin, to March this year, the trade deficit has narrowed. While all equity markets suffered last year, Chinese equity markets tumbled by fourfold that of the S&P 500 in 2018 by more than 25%, this had a knock-on effect to the Chinese economy, which slowed more notably than that of the US. However, it’s not all bad news for China; import tariffs imposed by Trump do not affect the Chinese consumer, as many are a tax on industrial inputs and not end-use products, whereas the opposite is true for the US. The US are also missing out on investment from China with foreign direct investment slumping by more than 80% between 2017 and 2018; in the US, investment in China fell marginally by c.7.5%. We will call this a draw.

One thing that is for certain; is that markets do not like uncertainty and while there is political limbo in the UK, UK equity markets will continue to be hindered and uncertainty over trade wars is likely to be more costly than trade tariffs themselves.