Global Markets Update Monday, 11 December 2017

Posted on 11 Dec 2017

 

United Kingdom

The FTSE 100 rallied 1.3% over the week.

After a tense week of negotiations, with the Northern Ireland border a key sticking point, the EU agreed that sufficient progress had been made in the Brexit negotiations to move onto the next phase – a transition arrangement and ultimately trade talks. The deal that secured special rights for four million citizens and was expected to see the UK make payments of between €40bn and €60bn.

Manufacturing output increased by 0.1% in October. On an annual basis, output grew 3.9%, the biggest increase since December 2016. However, industrial output was unchanged in October, ending a six-month run of increases as strong car exports failed to offset the effect of unseasonably warm weather on the energy sector.

Output from the construction sector unexpectedly contracted by 1.7% in October.

The CIPS/IHS Markit services purchasing managers’ index slowed to 53.8 in November, down from a six-month high of 55.6 in October.

Hammerson made a £3.4bn bid for smaller rival Intu. The deal will consolidate ownership of the UK’s biggest shopping malls at a time when consumers are increasingly shopping online.

US

The S&P 500 gained 0.2% over the week. Financials and industrials stocks were the strongest sectors as they were seen to benefit the most from tax reforms. Gains for the tech sector were more modest, although Apple was expected to be one of the major beneficiaries of lower taxes on the repatriation of overseas cash.

The US economy added a stronger-than-expected 228,000 jobs in November. With October’s data revised down to a gain of 244,000, job gains have averaged 170,000 over the last three months. The solid data was seen to increase the probability that the Fed would raise rates once more in December. The unemployment rate held steady at 4.1%.

Average hourly earnings rose 0.2% over November for a year-on-year increase of 2.5%. However, October’s data was revised to a 0.1% fall from a 0.1% rise.  

The ISM non-manufacturing index slipped to 57.4 in November from the 12-year high of 60.1 recorded in October.

Broadcom’s $130bn takeover bid for Qualcomm turned hostile with the Singapore-based company proposing to oust its rival’s entire board.

Twenty-first century Fox restarted talks with Walt Disney over the sale of its entertainment and international assets, including its 39% stake in Sky.

CVS Health, the biggest drugstore chain in the US, is to acquire health insurer Aetna for around $68bn. The new company should be able to strike better deals with drug makers.

Europe

The FTSE Eurofirst 300 rose 1.6% over the week.

The European Union and Japan agreed terms for a free trade deal set to create the world's biggest open economic area. The deal will encompass approximately 30% of global GDP.Europe continued

The Sentix index of eurozone investor sentiment dipped to 31.1 in December, down from a 10-year high of 34.0 in November.

German industrial production unexpectedly fell 1.4% in October; the biggest monthly decline of 2017. However, German factory orders rose 0.6% in October.

Eurozone retail sales fell a larger-than-expected 1.1% in October.

Japan

The Nikkei 225 ended the week with flat returns.

Japan’s third-quarter GDP growth was revised up to an annualised pace of 2.5% from the previous estimate of 1.4%, due to higher private capital expenditure and private inventory investment.

Bank of Japan governor Haruhiko Kuroda has started to use the phrase “reversal rate”, leading some commentators to wonder whether the BoJ will remain as dovish as it has to date.

The Nikkei-Markit services purchasing managers’ index dipped to 51.2 from 53.4 in the previous month, a 26-month high, with optimism rising to a six-month high.

Pacific Basin

Chinese exports surged 12.3% on a year-on-year basis in November, up from a revised estimate of 6.8% in October. Imports also increased, rising 17.7% in November, up from 17.2% in October. However, the contribution from consumption was revised down. In addition, the Caixin-Markit purchasing managers’ index for the services sector rose to 51.9 in November, up from 51.2 in October.

The Reserve Bank of Australia held interest rates at 1.5%. Australia’s GDP grew by a slower-than-expected 0.6% in the third quarter, although, on a year-on-year basis, growth accelerated to 2.8% its fastest pace since the second quarter of 2016.

The Indonesia Nikkei-Markit manufacturing purchasing managers’ index came in at 50.4 in November, up from 50.1 in October as factory output continued to rise and new orders growth picked up slightly.

Emerging Markets

Brazil’s central bank cut the benchmark Selic rate by 50bps to a record low of 7%. The move follows news that Brazilian inflation fell to 2.7% in October, compared to a rate of over 10% in 2016.

India’s central bank kept interest rates on hold at 6% but warned that inflation was rising. The India Nikkei-Markit services purchasing managers’ index dropped to 48.5 last month from 51.7 in October, its first drop in two months, amid sluggish demand and low customer turnout following the implementation of the Goods and Service Tax in July. Combined with the manufacturing purchasing managers’ index recording 52.6, India’s composite purchasing managers’ index fell to a three-month low of 50.3 in November.

Turkish inflation rose to a 14-year high of 12.98% in the year to November, up from 11.9% in October.

Bonds

The US yield curve has flattened at its fastest pace since 2008 over the last month. The difference between two- and 10-year yields has fallen 33bps to close to 50bps on the belief that tax reforms could provide a short-term boost to the economy, but were unlikely to trigger a long-term boost to inflation that would drive longer-dated yields higher.

The yield on the two-year UK gilt hit a peak of 0.56%, its highest level since June 2016, before ending the week flat at 0.51%.

Currencies

Sterling hit a six-month high against the euro on news that the UK and EU had finally made sufficient progress in the Brexit negotiations to move onto the next phase of talks, but subsequently weakened off its highs.