UK Market Update. Key Takeaways. Markets. 2 July UK stocks track trade worries with monthly fall

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1 UK Market Update 2 July 2018 UK stocks track trade worries with monthly fall Britain's top share index, the FTSE 100 1, broke a run of twomonth gains to close down in June, as a lingering global trade battle dealt a blow to investor sentiment. Though the index ended the month with a modest 0.5 percent loss, the second quarter as a whole was its best since Q1 of The quarter closed up a little over 8 percent, supported by a retreating pound that favoured exporters and rising oil prices that benefited the FTSE s big energy names. While the European Central Bank s (ECB) 2 signal that it would keep interest rates steady through next summer eased some investor concerns about tightening monetary policy, a Bank of England (BoE) 3 policy vote that bolstered expectations of a rate hike in August hurt the equity market in June. A raft of corporate news also weighed on the UK s blue-chip index 4, including the British government's decision of a sale stake in Royal Bank of Scotland, packaging firm RPC s spending plans; and profit warnings from department store chain Debenhams and housebuilder Berkeley. Energy stocks enjoyed a moderate gain for the month as oil majors got a boost from higher crude prices. Oil prices hit fresh highs at the last trading day of the month on a tighter market as U.S. sanctions against Iran threatened to remove a substantial crude volumes from world markets amid rising demand. FTSE 100 The index ends in red for the month after two-month gain Key Takeaways FTSE sees strongest quarter since 2013 Pound and oil boost index in the second quarter Pound posts monthly loss Economy and Brexit weigh on the pound World stocks worst first half since 2010 MSCI's 47-country world index 5 saw a trillion-dollar decline in value over the first six months Markets Equities Index Last Monthly Chg FTSE 100 7, % STOXX % DAX 7 12, % CAC , % Dow , % Nasdaq Composite 10 7, % Open Low High Close S&P , % Currencies UK U.S. Euro Yen GBP USD EUR YEN Benchmark Bonds 12 Latest Spread vs. Spread vs. UK U.S Germany France Italy

2 Pound feels growing Brexit pressure The pound suffered its worst quarter since the vote to leave the European Union (EU) in June 2016 triggered one of the biggest selloffs in the currency's history. Worries that Britain will run out of time for a deal with the EU for life after Brexit, a resurgent U.S. dollar, and weakness in the economy had combined to hammer the pound in the quarter, despite starting 2018 as one of the best performing currencies. The pound hit an eight-month low of $ in the last week of June. The British currency recouped some losses to close the month down 0.7 percent at $ BoE policy decision push yields higher The policy sensitive short-dated government bond yields rose for the month, after two consecutive down months, on BoE rate hike expectations and better-than-expected economic data. Two-year gilt 13 yields jumped 11 basis points to end the month at 0.72 percent. Ten-year yields ended the month at percent and thirty-year yields stood at percent. Pound performance The pound has yet to fully recover from its dramatic fall following the Brexit vote Looking Ahead SHIFTING UP A GEAR The Sino-U.S. trade conflict is about to shift into a higher gear, with additional U.S. tariffs on Chinese imports kicking in on July 6. The respective market moves indicate the United States has won round one of the tariff war - the yuan just clocked its worst month on record, while China's stock market suffered its deepest monthly slide since January Investors now wonder what action, if any, Beijing will take to stem the yuan's slide. CARDS ON THE TABLE Prime Minister Theresa May has promised to thrash out an agreement with her top team of ministers at a meeting next week after the EU issued a final warning on a Brexit deal. She intends to present a policy document, which will set out Britain's vision for its future relationship with the EU. EARNINGS SEASON HEATS UP The stock market will work through first-half earnings in the coming month as various big names, including luxury brand Burberry, consumer products giant Unilever, world's largest spirits company Diageo, drugmaker AstraZeneca, miner Anglo American, BT Group, and oil major BP report results.

3 Trillion dollar wipeout: world stocks' worst first half since 2010 A grizzly mix of U.S.-China trade tensions, central banks turning off the money taps and cooling growth in hotspots including Europe has wiped a trillion dollars off MSCI's 47-country world index through the first half of the year. A pumped-up dollar, which has had its best first half in three years, and a 16 percent leap in oil prices both played a big role in clobbering emerging markets (EM). Argentina's peso and Turkey's lira have been shredded 30 and 17 percent, respectively. Chinese stocks have entered bear market 14 territory and EM equities have slumped 10 percent, or 17 percent excluding a brief January surge. On Wall Street, the S&P 500, clung on to positive territory, and while trade jitters sapped the Dow Jones Industrial index, the Nasdaq composite hit records this month. Euro zone stocks were down, however, losing roughly 6 percent in H1. The FAANG (Facebook, Amazon, Apple, Netflix and Google) stocks were up almost 40 percent in the period, despite having $400 billion wiped off their combined value in March when it was revealed Facebook misused 50 million of its users' data. Among the major currencies, the dollar was up almost 3 percent against the euro and nearly 2 percent versus the safe-haven yen. Another 2017 high-flier, the cryptocurrency Bitcoin, crashed 60 percent during the six-month period. Another two U.S. interest hikes have seen Treasuries cost holders 3 percent this year, while German Bunds and gold are both down 4 percent. Italy's government bonds meanwhile have plunged 13 percent this quarter as an anti-establishment government took charge in Rome. MSCI's 47-country world index Worst H1 for world stocks since 2010 Percentage Looking Ahead GAME OF TWO HALVES It has been the worst first-half of a year in eight years due to a mix of U.S.-China trade tensions, central banks turning off the money taps and cooling growth in Europe. So what lies ahead of the second 2018 half? The major variable is whether more misery lies ahead amid global trade disputes. What is certain is that the ECB will end its bond-buying by the end of December and the BoE will raise interest rates, possibly shoring up the pound. UK Diary July 3 - BoE's Record of the Financial Policy Committee meeting held on June 19 will be published in London. July 4 - Introductory remarks by BoE Deputy Governor for Prudential Regulation Sam Woods at the Westminster Business Forum Keynote Seminar: Building a resilient UK financial sector next steps for prudential regulation, structural reform and mitigating risks. July 9 - UK central bank is schedule to organise a conference on Economics and Psychology: New ways of thinking about economic policy (to July 10) in London. Year

4 Glossary 1 FTSE A blue chip share index of 100 companies listed on the London Stock Exchange 2 European Central Bank - The central bank of the 19 European Union countries that have adopted the euro 3 Bank of England - The central bank for the United Kingdom 4 Blue-chip index - A stock index which tracks shares of the top-performing publicly traded companies 5 MSCI's 47-country world index - A gauge of the global stock market, which tracks equity returns in 47 developed and emerging markets 6 STOXX A share index that represents big, mid and small cap companies across 17 European markets 7 DAX - A blue chip share market index, consisting of 30 major German companies listed on the Frankfurt Stock Exchange 8 CAC 40 - A benchmark French stock market index, tracking the 40 largest stocks listed on Euronext Paris exchange 9 Dow 30 - A price-weighted average of 30 significant stocks trading on the New York Stock Exchange (NYSE) and NASDAQ 10 Nasdaq Composite - A share market index of the common stocks and similar securities listed on the NASDAQ stock market 11 S&P A major stock market index based on the market capitalisations of 500 large U.S. companies 12 Benchmark Bond - A key government bond that is used to gauge overall performance in a particular debt market 13 Gilts Bonds issued by the British government 14 Bear market - A market that has seen a general decline in value over a period of time

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