GLOBAL MARKETS UPDATE - MONDAY 18 SEPTEMBER 2017

Posted on 18 Sep 2017

Shares in global chipmakers suffered after Apple said its iPhone X would be launched later than expected.

United Kingdom

The FTSE 100 fell 2.2% over the week, hurt by a sharp rise in sterling.

UK inflation, as measured by the Consumer Prices Index, rose to 2.9% in August, up from 2.6% in July, due to higher clothing and petrol costs.

Minutes of the latest Bank of England Monetary Policy Committee meeting indicated that unless there is a sudden string of bad economic data members agreed that “some withdrawal of monetary stimulus is likely to be appropriate over the coming months”.

UK unemployment fell to a 42-year low of 4.3% in July, yet wage growth remained at 2.1%, below the level of inflation.

US

The S&P 500 jumped 1.5% over the week, closing at a record high, along with the Dow Jones Industrial Average and Nasdaq indices, amid broad relief that the impact of Hurricane Irma was less severe than many had feared.

Hedging activity to protect against a fall in US equities has seen the biggest jump in 14 months.

US consumer prices rose 0.4% in August, the largest monthly gain since January as rising gasoline prices following Hurricane Harvey ended five consecutive months of relatively weak data. This took the year-on-year price increase to 1.9% compared to 1.7% in July. Core consumer prices, which exclude food and energy, gained 0.2% over August, keeping the year-on-year increase at 1.7% for the fourth month in a row.

The University of Michigan consumer sentiment survey dipped to 95.3 in September, down from 96.8 in August, 

as sentiment was affected by Hurricanes Harvey and Irma.

US retail sales fell 0.2% in August and were lower in June and July than previously estimated.

Industrial production dropped 0.9% in August, the biggest decline since 2009. The weak data was attributed to the effect of Hurricane Harvey.

Europe

The FTSE Eurofirst 300 gained 1.3% over the week.

S&P raised Portugal’s credit rating to investment grade, noting it expected solid economic growth and further budget consolidation.

Japan

The Nikkei 225 rallied 3.3% over the week, overcoming concerns over North Korea’s latest missile launch.

Shinzo Abe, Japan’s Prime Minister, is said to be considering a snap election after rising North Korean tensions and a well-received recent cabinet reshuffle have raised his approval weightings. Mr Abe is not obliged to hold an election for another year.

Pacific Basin

In China, retail sales, fixed-asset investment and industrial production all missed expectations in August. Retail sales slowed, growing 10.1% on a year-on-year basis compared to 1.4% in July. Industrial production grew 6.0% in August, down from 6.4% in July and its slowest rate of growth since January, while fixed-asset investment held steady at 8.3%.

Emerging Markets

Russia’s central bank cut interest rates by 50bps, taking the key rate to 8.5%.

Despite the recent uptick in inflation, the Turkish central bank kept interest rates on hold as it balanced political demands for lower rates. The nation’s GDP expanded by 2.1% in the second quarter, taking its year-on-year growth rate to 6.5%.

Bonds

30 US companies, including Apple, Alphabet, Microsoft, Ford, Coca-Cola and Boeing, have more than $800bn of US fixed income investments, turning them into a major force in the market.

The yield on the two-year US Treasury note rose 11bps over the week to 1.38%, its highest level since late July following stronger-than-expected US inflation data. The yield on the 10-year US Treasury bond closed the week at 2.20%.

The yield on the two-year UK gilt ended the week at 0.42%, having touched a 15-month high of 0.48% amid expectations that UK interest rates will soon be raised. The yield on the 10-year UK gilt closed the week at 1.36%.

The yield on the 10-year German Bund closed the week at 0.43%.

China is planning to issue US dollar-denominated bonds for the first time in a decade. The sale is seen as an opportunistic move to take advantage of low interest rates and a booming US dollar bond market.

Currencies

The British pound hit its highest level against the US dollar since the Brexit vote after one of the more dovish MPC members said “the moment is approaching” for a rise in interest rates.

Commodities

Brent crude touched a five-month high after the IEA saw healthy outlook for global demand growth in both 2017 and 2018.

Copper had its worst week since the start of the year following disappointing Chinese data. Gold also eased.