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On-going trade war intensified over the course of the month

The EU parliamentary elections which were held in May 2019 were viewed as a potential flash-point for equity markets and polls had indicated the very real possibility of a surge in support for populist parties, whose support for the whole European project is questionable. Combined with the continuing fall out from Brexit this had the potential to throw the meteoric rise European equities have seen throughout the course of 2019 very much off course. As it turned out the market return for May was negative but the EU elections did little to contribute to the result. If anything, the result was a positive one with support for liberal and green parties increasing resulting in no overall increase in the share of the vote for the more radical parties. It was the on-going trade war, which intensified over the course of the month to a new level of animosity, that shook markets. President Trump once again took the lead blacklisting Chinese telecom giant Huawei from US technologies and services. The row had been brewing for some time but the accusations of spying clearly had the ability to further rankle the Chinese authorities. For European markets the more worrying development was the suggestion by President Trump that automotive imports were a threat to American security. The EU were quick to react with their own threats of retaliation but equity markets had already tumbled on these worrying developments which are unlikely to produce any winners. Indeed, the IMF made the proclamation that US companies were likely to be the hardest hit from any escalation in the trade war. Despite the EU election result there were still political tensions simmering in Europe not least from Italy where discussions over the country’s fiscal policy reached crisis point with the ECB threatening a $4bn fine for failure to comply with the rules. Some grand-standing from deputy prime minister Matteo Salvini caused some tremors but by month end the situation appeared to have calmed somewhat as talks continued. In the UK Theresa May finally announced her resignation throwing a further complexity into an already extremely complex situation.