Global Markets Update Monday 08 October 2018

Posted on 08 Oct 2018

Stronger US economic data led to a sharp sell-off in global bonds, causing stock markets to weaken.

Global M&A activity hit $3.3 trillion in the first nine months of 2018, surpassing the previous record set just before the financial crisis in 2008. During the final week of September, Michael Kors offered $2bn for Italian fashion house Versace, while Barrick Gold bought Rangold Resources in a $66bn deal.

Please email us if you would like to receive our weekly newsletter direct to your inbox.

 

United Kingdom

The FTSE 100 fell 2.3% over the two-week period.

Theresa May emerged from the Conservative Party Conference in a stronger position than many had expected. In Brexit news, Ireland backed her plan for an all-UK customs union with the EU – such a deal would avoid the need for a hard border between the Republic of Ireland and Northern Ireland.

The IHS Markit services purchasing managers’ index slipped to 53.9 in September from 54.3 in August. Activity in the construction sector slipped to a six-month low while manufacturing activity unexpectedly picked up, rising to 53.8 in September from 53.0 in August.

UK consumer confidence dipped in September, as Brexit-related concerns weighed on spending.

Unilever dropped plans to simplify its structure by relocating its HQ to The Netherlands following a revolt by UK shareholders. The plans would have meant that Unilever would no longer be listed in the UK.

Two high profile IPOs – Aston Martin and Funding Circle – have faltered in the opening days of trading.

US

The S&P 500 lost 2.0% over the fortnight.

Canada reached an agreement to join a trilateral deal with the US and Mexico to overhaul Nafta.

The Federal Reserve raised rates by a further 25 basis points in September, its eighth increase in the current cycle, which took them to a range of 2.0% to 2.25%. The US central bank dropped previous assurances that policy was “accommodative” but continued to forecast that rates would be raised again in December this year, followed by three increases in 2019 and another in 2020.

The ISM non-manufacturing index rose to 61.6 in September, compared to 58.5 in August and the highest level since record started in 2008. The manufacturing index fell to a weaker-than-expected 59.8 in September, compared to 61.3 in August. August’s reading was the highest reading since May 2004.

US unemployment fell to 3.7% in September, its lowest level since 1969. Non-farm payrolls rose by a lower-than-expected 134,000 in September, although data for August was revised up to 270,000 jobs, compared to an initial estimate of 201,000. September’s data was affected by Hurricane Florence, which caused catastrophic flooding and displaced thousands across North and South Carolina last month. Average earnings rose at a year-on-year pace of 2.8%.

The core PCE index, the Fed’s preferred measure of inflation, held steady at a six-year high of 2.0% in August. It has been at this level since May.

Tesla fell after the US SEC accused Elon Musk of fraud, relating to his comments regarding having funding already in place to take the company private. He was forced to resign as Chairman of Tesla but stayed in place as CEO.

Facebook revealed it had suffered a cyber attack affecting 50 million users.

Europe

The Eurofirst 300 slid 1.9% over the two weeks.

Eurozone headline inflation rose to 2.1% in September, from 2.0% in August. Core inflation eased to 0.9%, from 1.0% in August.

The European Commission’s economic sentiment indicator dropped in September, dragged lower by pessimism in France and Spain.

French consumer confidence fell to its lowest level since April 2016.

German industrial production rebounded in August, rising 2.0% compared to forecasts of just 0.5%.

Italy agreed a larger budget deficit than many had expected, with the coalition government signalling that it intends to stick to its pre-election promises and placing it on a potentially confrontational path with Brussels. The government is betting on economic growth well in excess of consensus forecasts to fund its expensive platform of welfare payments.

German conglomerate ThyssenKrupp is to split into two separate public companies: ThyssenKrupp Industrials will focus on industrial goods; ThyssenKrupp Materials will contain the company’s steel and marine operations. 

Japan

The Nikkei 225 eased 0.4% over the two-week period.

The Bank of Japan’s quarterly Tankan survey of business sentiment was weaker than expected, with attitudes to both current and future conditions deteriorating.

Japan’s industrial production rose by a slower-than-expected rate of 0.7% in August.

Pacific Basin

The People’s Bank of China cut the reserve requirement ratio for most commercial banks by one percentage point. The move, which is the fourth cut this year, will inject Rmb750bn ($109bn) into the banking system and is aimed at boosting growth in China’s slowing economy.

Emerging Markets

Emerging market equities fell to a fresh one-year low amid renewed US dollar strength.

Brazilian equities defied the broader sell off in emerging markets, with optimism spurred by polls indicating far-right candidate Jair Bolsonaro is the frontrunner to become president. The country’s election was on 7 October.

Turkish inflation hit 24.5% in September. The country’s finance minister blamed the surge on “opportunism and stockpiling”.

Consumer inflation in the Philippines rose to 6.7% in September, its highest level in nine years, driven by nearly double-digit growth in food prices.

Consumer prices in Indonesia rose at the slowest pace in more than two years in September, rising 2.88% on a year-on-year basis.

The Bank of Mexico left its key lending rate unchanged at 7.75%, a nine-year high. The Reserve Bank of India also kept rates on hold.

Bonds

Strong US economic data and a positive tone from Fed chair Jay Powell triggered a sharp sell-off in global bonds. The yield on the 10-year Treasury bond touched 3.23% - its highest level since 2011. The yield on the two-year note reached 2.89%, while the yield on the 30-year bond yield climbed 3.40%, the highest since 2014.

Yield on European government bonds also rose. 10-year UK and German government bond yields reached 1.72% and 0.57% respectively, while the yield on the 10-year Italian bond touched 3.46%, its highest level in more than four years, as talks on a national budget between the parties of the Italy’s governing populist coalition continued.

In the credit markets, Comcast is poised to borrow at least $20 billion to its acquisition of Sky, in what would be one of the largest corporate bond sales on record.

Commodities

Brent crude rose above $86 barrel amid concerns over looming US sanctions on oil exports from Iran.