Global Markets Update Monday, 2 December 2019

Posted on 02 Dec 2019

The week saw $70bn of corporate takeovers in just one day, including LVMH’s planned $16.6bn takeover of Tiffany and Charles Schwab’s $26bn deal to combine with TD Ameritrade. Smaller deals included Swiss drugmaker Novartis’ $9.7bn purchase of biotech The Medicines Company; a Mitsubishi Group-led consortium agreed a €4.1bn takeover of Dutch utility Eneco; and eBay sold its online ticketing business StubHub for $4.1bn to Viagogo.

 

UK

The FTSE 100 rose 0.3% over the week.

While a YouGov poll taken two-weeks before the general election suggested a significant Tory majority, more recent polls suggest that the race may be tightening between the two main parties with Labour making headway.

The Institute for Fiscal Studies warned that neither the Conservative nor Labour Parties’ spending plans were “credible”. The IFS said that it was "highly likely" the Tories would end up spending more than their manifesto pledges, while Labour would be unable to deliver its spending increases as it has promised without raising taxes by more than it had already proposed.

US

The S&P 500 gained 1.2% over the week, closing November with their best monthly return since June as recessionary fears faded. Several large corporate deals also gave a boost to stocks.

US economic growth was revised up to an annualised rate of 2.1% in the third quarter, up from an initial estimate of 1.9%. This is an increase from the 2.0% pace of growth recorded in the second quarter.

Durable goods orders rose by a larger-than-expected 0.6% in October.

The core personal consumption expenditures (PCE) index, the Fed’s preferred measure of inflation, dropped to 1.6% on a year-on-year basis in October, compared to 1.7% in September. 

Ahead of the crucial holiday season, shoppers appear to be favouring retailers offering good value and selection over listless department stores. Walmart and Target have both raised their full-year outlooks, while Macy’s issued its third profit warning for the year and Kohl’s blamed disappointing third-quarter results on the “increasingly competitive environment”.

Europe
 
The FTSEurofirst 300 rallied 0.7% over the week, with shares touching a four-year high mid-week.

Headline eurozone inflation rose by a greater-than-expected 1.0% in November compared to a year earlier. 

The Ifo index of German business sentiment rose to 95.0 in November, slightly above the 94.7 recorded in October. The data raised hopes that the slowdown in Germany’s economy was starting to bottom out.

Japan 

The Nikkei 225 rose 0.8% over the week.

Industrial production shrank 4.2% in October, the fastest decline since January 2018. 
 
Pacific Basin

In Hong Kong, pro-democracy parties romped to a landslide victory in local elections. Meanwhile, Alibaba’s Hong Kong IPO was positively received by investors, with shares jumping more than 6% in their first listing. However, news that President Trump had signed into law a bill backing Hong Kong’s anti-government protestors caused shares to close on a weak note as investors braced for retaliation from China. 

Emerging Markets

Mexico’s economy lurched into technical recession in the third quarter according to revised official data. The Bank of Mexico is now expected to come under increased pressure to keep cutting interest rates.

India’s GDP expanded 4.5% over the third quarter compared with the same three months in 2018. This is a slowdown from the 5.0% rate of growth recorded in the second quarter and marks the sixth successive quarter of slowing growth.
 
Bonds

The yield on the 10-year US Treasury bond closed the week at 1.78%, while the yield on the 10-year German Bund closed at -0.36%. 

China raised $6 billion in its largest-ever dollar-denominated government bond deal. The yield on China’s 10-year bond yields around 40bps more than the equivalent dated US Treasury bond.

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