Global Markets Update Monday 20 August 2018

Posted on 20 Aug 2018

Stockmarkets remained nervous as the Turkish lira declined further towards the end of the week, sparking fears of broader issues in emerging markets.

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United Kingdom

The FTSE 100 lost 1.4% over the week.

UK retail sales rose by a stronger-than-expected 0.7% in July. While high street sales remained weak, promotions helped to attract online shoppers.

UK inflation rose to 2.5% in July, as the cost of transport and computer games increased.

UK unemployment fell by 65,000 to 1.36 million in three months to June - the lowest level in more than 40 years – while the employment rate fell to 4.0% - the lowest rate since February 1975. Wages, excluding bonuses, grew by 2.7% in the three months to June, compared with a year ago.

US

The S&P 500 rose 0.2% over the week.

President Trump asked the SEC to consider scrapping quarterly reporting and moving to a six-month system.

The University of Michigan’s survey of US consumer sentiment fell to 95.3 in August, down from 97.9 in July and the lowest reading since September 2017 reflecting growing worries about the spectre of higher market prices, particularly among less-affluent households.

US retail sales rose 0.5% over July.

Europe

The Eurofirst 300 fell 1.3% over the week. Italian assets, in particular, were under pressure, falling to their lowest level since April 2017, as a bridge collapse in Genoa highlighted the fault lines of the populist coalition.

Eurozone second-quarter GDP growth was revised up to 0.4% from an initial reading of 0.3%. Meanwhile, the German economy expanded by a larger-than-expected 0.5% in the second quarter, helped by solid domestic demand.

The Zew index of German economic sentiment rose to   -13.7 in August compared to -24.7 the previous month. However, the index remains below its long-term average amid concerns over trade tensions.

Norway’s central bank kept interest rates on hold at 0.5% but said it was likely to increase them next month.

Japan

The Nikkei 225 eased 0.1% over the week.

Japanese exports rose by a smaller-than-expected 3.9% in July compared to the same period a year earlier, while imports rose 14.6%, broadly in line with forecasts.

Pacific Basin

Mainland Chinese equities closed the week near a two-year low as economic data indicated the slowdown was continuing. Chinese fixed-asset investment rose 5.5% over the first seven months of the year, compared to the same period in 2017. The reading indicated the slowest pace of expansion since records began in 1992. Industrial production rose 6.0%, while year-on-year retail sales growth eased to 8.8% compared to 9% in the previous month.

Chinese tech group Tencent reported disappointing results, due in part to Beijing’s crackdown on gaming.

The governor of the Reserve Bank of Australia said that the possibility of a rate cut was low, barring a crisis in China, and that he saw no reason to change the bank’s target inflation range.

Singapore’s economy grew 3.9% in the second quarter compared to a year earlier. The reading was lower than many had expected and was a slowdown from the 4.5% rate of expansion recorded in the first quarter of the year. 

Malaysia’s GDP grew 4.6% in the second quarter compared to the year ago period. This was the slowest rate of growth since late 2016. The data is the first reading since Mahatir Mohamad was unexpectedly elected prime minister in May. In other news, the new governor of Malaysia’s central bank moved to liberalise its foreign exchange policy and signalled a more conciliatory approach to regulating overseas insurance companies, marking a sharp shift away from the previous administration’s tough stance on international financial institutions.

Bank Indonesia surprised markets by increasing its benchmark lending rate by 25 basis points to 5.5%. The move came after the rupiah weakened to its lowest since October 2015.

Emerging Markets

The MSCI Emerging Markets index fell into bear territory during the week having fallen 20% from its January high.

Turkey’s central bank raised rates in all but name, forcing lenders to borrow overnight at a penalty. The unorthodox move is an attempt to circumvent President Erdogan’s aversion to raising interest rates. Turkey’s credit rating was also downgraded further into junk territory, with S&P lowering its rating to B+ while Fitch reduced its rating to Ba3.

Bonds

The difference between two- and 10-year US Treasury bond yields dropped to a new decade low of 23.4 basis points.

Italian government bonds continued to underperform in the eurozone, due to heightened domestic political risks. The yield on two-year Italian bond rose to 1.435%, its highest level since early June, while the 10-year yield touched 3.2%, its highest level in more than two months.

Commodities

Oil and metals prices were affected by the strength of the US dollar. Brent crude hit its lowest level since April, while copper hit a 15-month low and gold traded at its cheapest since early 2017.

Currencies

The US dollar hit a 13-month high against a basket of peers.

The collapse of the Turkish lira spread to emerging market currencies, with the South African rand, Mexican peso and Russian rouble coming under pressure.