GLOBAL MARKETS UPDATE - MONDAY 11 SEPTEMBER 2017

Posted on 11 Sep 2017

Renewed tensions concerning North Korea and the impending arrival of Hurricane Irma on US soil prompted investors to flee to safe haven assets. Bonds and gold rallied but shares delivered mixed returns.

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

 

United Kingdom

The FTSE 100 dropped 0.2% over the two week period.

The purchasing managers’ index for the manufacturing sector rose to a four-month high of 56.9 in August, up from 55.1 the previous month.

However, the service sector purchasing managers’ index fell from 53.8 to 53.2 in August.

The purchasing managers’ index for the construction sector showed activity expanding at the slowest pace for a year in August.

Manufacturing output rose 0.5% in July, the fastest pace this year, as car production rebounded after declining in June. But industrial production rose just 0.2% in July.

The annual growth rate of UK consumer credit slipped to 9.8% in July from a record high of 10.9% last November. This is the first time since April 2016 that the rate has been below double-digits.

US

The S&P 500 gained 0.9% over the fortnight.

The US economy added a lower-than-expected 156,000 jobs in August and data for July and June was revised down by 41,000. In addition, the jobless rate rose to 4.4%, from 4.3% the previous month. Wage growth remained at 2.5%.

US GDP expanded up an annualised rate of 3.0% in the second quarter, compared to an initial estimate of 2.6%. The stronger reading was due to household spending and higher investment and is the highest rate of growth since the start of 2015.  

The Fed’s preferred measure of inflation, the core personal consumption expenditures price index, edged up to 1.5% in July, from 1.4% in June. This was the smallest year-on-year increase since December 2015.

President Trump found a temporary solution to his funding problems, agreeing a short-term increase in the debt ceiling with the Democrats.

The Bank of Canada raised its benchmark interest rate by 25bps to 1.0%, adding to its earlier rate increase in July.

Europe

The FTSE Eurofirst 300 gained 0.4% over the two weeks.

The European Central Bank raised its economic growth forecast for 2017 growth in the eurozone from 1.9% to 2.2%, the fastest growth in 10 years. President Mario Draghi indicated that plans to begin scaling back the ECB’s quantitative easing programme would be unveiled next month but noted that "a very substantial degree of monetary accommodation" was still needed to help boost inflation. He also stated that the rise in the euro - which has gained 13% in value against the dollar this year - was a source of "uncertainty.

The European Commission’s economic sentiment indicator rose to 111.9 in August, its highest level since July 2007. July’s figure was also revised up from 111.2 to 111.3.

The IHS Markit eurozone manufacturers purchasing managers’ index rose to 57.4 in August, up from 56.6 in July, and one of the strongest reading since 2011.

Eurozone GDP growth was revised up to 2.3% in the second quarter, up from a previous estimate of 2.2%.

Eurozone inflation rose 1.5% year on year in August, up from 1.3% in July. Core inflation, which excludes energy prices, remained flat at 1.2%.

Japan

The Nikkei 225 lost 0.9% over the fortnight.

Retail sales rose by a better-than-expected 1.9% year on year in July, down from a rate of 2.1% in June.

Industrial production slid 0.8% in July, the third time in 2017 it has been in contraction territory.

Pacific Basin

China’s exports rose 5.5% in August, down from 7.2% in July, as demand from major trading partners softened, while imports enjoyed an unexpected boost, rising 13.3% in August compared to 11.0% in July.

China’s official manufacturing purchasing managers’ index unexpectedly rose to 51.7 in August, but a separate survey showed service sector activity slowing. Separately, the Caixin-Markit manufacturing purchasing managers’ index climbed to 51.6 in August.

In South Korea, the Nikkei-Markit manufacturing purchasing managers’ index came in at 49.9 in August, its second successive month of contraction.

The Nikkei-Markit purchasing managers’ index for manufacturing in Taiwan rose to 54.3 in August. This was its fastest rate in five months in August as new orders were boosted by sharp increase in new export business.

Australia’s GDP rose 0.8% quarter on quarter in the three months to the end of June, up from 0.3% in the first quarter, but below expectations. .

The Indonesia Nikkei-Markit manufacturing purchasing managers’ index rose to 50.7 in August, up from 48.6 July, on the back of improved output and strong export orders.

Emerging Markets

Brazil’s central bank cut interest rates by 100bps to 8.25% aided by a rapid fall in inflation. In other news, Brazil’s GDP grew 0.2% in the second quarter compared to the first three months of the year and 0.3% compared with the same quarter a year earlier.

India’s GDP grew by 5.7% in the second quarter, its slowest pace since 2014. In addition, the Nikkei India business activity index came in at 47.5 in August, its second straight month of decline, as the implementation of the unified goods and service tax continues to affect the economy. However, India’s manufacturing sector bounced back from a 101-month low as greater familiarity with a new system of taxation aided a rise in new orders and output across the country.

Czech second-quarter GDP was revised up to a year-on-year rate of 4.7%, from a previous estimate of 4.4%.

Business confidence in South Africa fell to a 32-year low as concerns over the outlook for the economy added to political uncertainty.

Turkish inflation rose back above 10% in August, well above the official target of 5%, and marking an end to three consecutive months of declines.

Bonds

The yield on the 10-year US Treasury bond touched 2.03%, the lowest level since President Trump’s victory in November 2016 amid heightened demand for safe haven assets and indications the Fed may keep rates on hold for the rest of this year.

The yield on the 10-year German Bund closed at 0.31%.

The yield on Japan’s benchmark 10-year government bond fell below zero for the first time since mid-November, due in part to strong demand for safe havens.

Weekly sales of investment-grade US corporate bonds surged past the $1tn mark for the first time as lowest borrowing costs prompted Apple, IBM, Home Depot and Visa to issue bonds.

Inflows into US junk bond funds exceeded $1bn in the week to 6 September: junk bond fund inflows have only surpassed the $1bn-a-week mark five times this year; the last time was in late June. The jump in investor inflows pared this year’s cumulative outflows to $2.8bn, according to EFPR.

Currencies

The US dollar hit a 33-month low against a basket of its peers. In particular, the euro hit its highest level against the dollar since January 2015 despite the ECB’s concerns about its strength.