Janet Mui: weekly economic update 9 August
The weakening yuan triggered a wave of fear in markets, pushing down bond yields. In the UK, the economy shrank in the second quarter – the first contraction for more than six years.
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- The significant trend of the week was the depreciation of the Chinese yuan, spooking global equity markets and sparking fears of a currency war.
- Bond yields fell, with yields on ten-year German bunds falling to –0.6%.
- Central banks in a number of countries, including New Zealand, cut interest rates.
- The UK economy contracted in the second quarter, as the stockpiling activity in the first quarter (when Brexit was anticipated to occur at the end of March) was unwound.
- This was the first quarter of negative growth since 2012 and took markets by surprise, with sterling falling.
- We think the UK may be able to avoid recession, however, in part because of increased Government spending. But given the uncertainty around Brexit we remain cautious on the UK.
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