Global Markets Update Monday 15 October 2018

Posted on 15 Oct 2018

Global stockmarkets made progress amid easing trade concerns despite the news that President Trump had requested aides to proceed with tariffs on a further $200bn of Chinese goods.

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United Kingdom

The FTSE 100 rose 0.4% over the week.

Mark Carney agreed to stay on as governor of the Bank of England until 2020 but gave a stark warning of the economic consequences of a “no-deal” Brexit.

The Bank of England unanimously opted to keep interest rates on hold and continue with “an ongoing tightening of monetary policy” at a gentle pace so long as there was a “smooth adjustment” to Brexit.

UK GDP grew 0.6% in the three months to July, as a recovery in retail and construction helped the economy grow at its fastest pace in a year.

Wage growth picked up to 2.9% on a year-on-year basis over the three months to July as the unemployment rate held steady at 4.0%.

US

The S&P 500 gained 1.0% over the week.

Headline consumer prices rose 2.7% on a year-on-year basis in August, down from the 2.9% rate of increase recorded in July. Core inflation also eased, rising 2.2% on a year-on-year basis, compared to 2.4% in July.

US retail sales rose just 0.1% in August, the lowest rise in six months. Activity was weighed down by weakness in clothing and department store sales, which saw sales drop 1.7% and 1.0% respectively from July.

The University of Michigan’s index of consumer sentiment bounced sharply from August’s seven-month low to touch a six-month high in September.

US industrial production rose 0.4% in August, while data for July was revised to 0.4% from a previous estimate of 0.1%.

Europe

The Eurofirst 300 rallied 1.2% over the week.

Mario Draghi, ECB president, said that the uncertainty surrounding the European Central Bank’s inflation outlook is “receding” and reaffirmed that the ECB would half its monthly bond purchases to €15bn starting in October and continuing until the end of the year.

Eurozone wages rose 2.2% on a year-on-year basis in the second quarter, the fastest pace of acceleration in almost six years.

The ZEW gauge of German economic sentiment rose by a stronger-than-expected 3.1 points in September to -10.6 points, a sharp rebound from the reading of -24.7 in July, its lowest reading since August 2012.

The Swedish krona weakened after the country’s consumer price inflation index fell by more than had been expected.

Japan

The Nikkei 225 surged 3.5% over the week amid optimism over US/China trade relations.

Japan’s second-quarter GDP growth was revised sharply upwards to an annualised rate of 3.0%, from an initial estimate of 1.9%. This is the highest quarterly growth rate in two years.

Japanese machinery orders surged 11% in July, after falling 8.8% in June. In year-on-year terms, orders rose 13.9% in July after rising just 0.3% in the previous month.

Pacific Basin

Chinese inflation rose to a year-on-year rate of 2.3% in August, the highest level in six months.

China’s fixed-asset investment grew 5.3% in the first eight months of the year, the lowest figure since at least 1995 and the fifth consecutive record low. However, retail sales rose 9% in August compared to a year earlier, up from 8.8% in July, while industrial output increased at an annual rate of 6.1%, up from 6% in July.

Emerging Markets

The Turkish economy slowed in the second quarter of the year, growing at a year-on-year pace of 5.2%.

Turkey’s central bank defied President Erdogan’s calls for lower rates by raising interest rates by 6.25% to 24%. The Turkish lira rallied on the news.

In India, the government announced plans to curb the import of non-essential items and boost exports in an attempt to tackle the country’s current account deficit.

Russia’s central bank raised rates by 25bps to 7.5%, the first in almost four years. Earlier in the week, the Russian rouble had weakened to near a two-and-a-half year low against the US dollar amid concerns over the independence of its central bank. The central bank governor has resisted cutting rates, but prime minister Dmitry Medvedev has called for rate cuts.

 

Bonds

The yield on the two-year Treasury bond touched 2.79%, its highest level in just over 10 years, while 10-year US Treasury yields breached 3.0% for the first time since early August.

The yield on the 10-year German Bund closed the week at 0.45%.

Commodities

Oil prices rose, with Brent crude briefly rising above $80 a barrel mark for the first time in nearly four months amid fears over the potential damage to key infrastructure from Hurricane Florence.