Global Markets Update Monday 14 January 2019

Posted on 21 Jan 2019

Global stocks rallied amid optimism as the US and China commenced new trade talks.

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United Kingdom

The FTSE 100 rose 1.2% over the week.

The UK parliament’s debate on the Brexit deal started. The deal, which will be put to a vote on 15 January, continues to look as though it will be rejected by parliament. Several MPs took measures to try to prevent the UK crashing out of the EU without any deal.

The UK economy grew 0.3% in the three months to November, its weakest pace in six months. The economy grew by 0.2% in November, up from 0.1% in October and flat growth in September.

US

The S&P 500 rallied 2.9% over the week.

The US shutdown became the longest in history, affecting the release of economic data, such as exports and imports, among other services.

Fed chair Jay Powell reiterated that the Fed would be patient in terms of raising rates, although he said the Fed would continue shrinking its balance sheet to a more normal level.

The ISM non-manufacturing index slid to a weaker-than-expected 57.6 in December. This was the lowest level in five months. This follows a sharp fall in the manufacturing index the previous week, which fell to its lowest level since December 2016.

Headline consumer prices slid 0.1% month-on-month in December, the first decline in the CPI since March 2018. However, on an annual basis, headline inflation rose 1.9% in December. The core CPI, which excludes food and energy, rose 2.2%, unchanged from the previous month.

Europe

The Eurofirst 300 gained 1.4% over the week.

Minutes of the European Central Bank’s last meeting showed increasing concern over downside risks to the region’s economic outlook.

German industrial production dropped by a larger-than-expected 1.9% in November. This is the third consecutive month of decline.

Japan

The Nikkei 225 increased by 3.6% over the week.

Japan’s Nikkei-Markit services purchasing managers’ index dipped to a three-month low of 51 in December, down from 52.3 in November, due to poor weather and weaker demand.

SoftBank scaled back plans for investment in lossmaking shared-office provider WeWork.

Pacific Basin

Speculation rose that Beijing would introduce more stimulus measures after Chinese factory gate inflation dipped to a two-year low in December and consumer inflation fell to a six-month low.

Emerging Markets

Brazil’s consumer prices slowed in December, rising 3.75% on an annual basis which is below Brazil’s official inflation target of 4.5% plus or minus 1.5%.

Bonds

The yield on the US 10-year Treasury bond closed the week at 2.70%, with the two-year note yield at 2.54%. Meanwhile, the German 10-year Bund yield closed the week at 0.18%.

After a very weak end to 2018, yields on US high-yield bonds have dropped sharply with spreads over Treasuries narrowing even as Treasury yields fall. The improved sentiment towards high-yields bonds was evidenced when gas pipeline company Targa Resources sold $1.5bn of US high-yield debt during the week. This was the first such deal since November last year.

Currencies

Oil rose around 6% over the week as Brent crude rose back above $60 a barrel.