Global Markets Update Monday, 13 January 2020

Posted on 13 Jan 2020

Developments in the Middle East caused global stocks to remain nervous, as Iran fired missiles at US bases in Iraq in retaliation for a US drone strike that killed Qassem Soleimani, head of Iran’s elite Quds force. However, tensions appeared to ease as the weak progressed, with Iran admitting it had erroneously fired a missile that downed a Ukrainian passenger jet. Stocks were also cheered by the prospect that the US/China “phase one” deal would be signed next week.

UK
The FTSE 100 slid 0.5% over the week.

The IHS Markit/CIPS services purchasing managers’ index was revised higher to 50.0 in December 2019 from a preliminary estimate of 49.0 and compared to a reading of 49.3 in November. The survey also showed that business optimism rebounded to its highest since September 2018.

The British Retail Consortium said retail sales fell 0.1% over 2019, marking the first annual sales decline since 1995. Sales in November and December were particularly weak, falling 0.9%. However, the number excludes some online retailers, such as Amazon, which some experts reckon now account for some 20% of online sales.

Anglo American bid £386 million for struggling potash miner Sirius Minerals.

US
The S&P 500 rallied 1.2% over the week.

The US economy added 145,000 jobs in December. The data was lower than had been expected and represented a slowdown from job growth in November. The unemployment rate held at an historic low of 3.5%, but earnings growth slowed, rising at an annual rate of 2.9%, the weakest reading since July 2018.

The ISM non-manufacturing index rose to 55 in December, up from 53.9 in November and the strongest pace of expansion since August 2019.

Europe 
The FTSEurofirst 300 rose 0.2% over the week.

The IHS Markit eurozone composite purchasing managers’ index rose to 50.9 in December, slightly higher than November’s reading of 50.6, a rise in the domestically focused services sector outweighed a further slide in manufacturing. Services activity rose to a four-month high of 52.8 in December, up from 51.9 in November, but manufacturing activity fell to almost a seven-year low.

Eurozone inflation rose to 1.3% in December, up from 1.0% in November and the highest level in six months. Core inflation was unchanged at 1.3%.

Sentiment among eurozone investors rose for the third month in a row in January, according to the German-based Sentix survey, which rose to 7.6 points In January compared to 0.7 in December.

German exports dropped 2.3% in November, but industrial production rebounded, growing 1.1%, following two months of declines.

Japan 
The Nikkei 225 gained 0.8% over the week.

Pacific Basin
South Korea’s government announced it will spend $51 billion on infrastructure, with the bulk of the money set aside for infrastructure building and housing construction. The government had already committed to an 8% increase in budget spending for 2020 compared with last year.   

Emerging Markets
India’s government forecast GDP growth of 5% for the current financial year compared with a year earlier, its slowest pace in 11 years, amid cooling private consumption, slowing industrial activity and stagnant investment.

Bonds
The yield on the 10-year US Treasury closed the week at 1.82%, while the 10-year German Bund ended at -0.24%.

Yields on investment-grade and high-yield corporate bonds have continued to decline so far in 2020. The yield on the overall high-yield market has fallen to its lowest level in more than five years, while investment-grade corporate bond yields have fallen to their lowest level since September 2016.

Currencies
The British pound retreated after Bank of England governor Mark Carney suggested that more stimulus could be on the cards. Speculation that trade talks between the EU and the UK may continue past the proposed deadline of December also weighed on the pound.

In an attempt to weaken the baht, Thailand’s central bank announced that it will relax rules on capital outflows. The currency strengthened around 9% versus the Us dollar in 2019.

Commodities
Gold rose to $1,580 a troy ounce, its highest level since April 2013, before trimming the advance as Middle East tensions appeared to ease towards the end of the week.

Oil prices hit a three-month high, with Brent crude trading above $70 a barrel, the highest level since an attack on a Saudi oil facility last year, before giving up some of their gains.

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