GLOBAL MARKETS UPDATE - MONDAY 21 AUGUST 2017

Posted on 21 Aug 2017

United Kingdom

The FTSE 100 rose 0.2% over the week.

UK retail sales rose 0.3% in July, helped by stronger spending on food, but data for June was revised down from 0.6% to 0.3%.

Employment in the UK hit a record high and the jobless rate fell to 4.4%. However, productivity continued to fall. Wage growth also picked up, rising to 2.1% on an annual basis, although this remains below the level of inflation.

Consumer price inflation held steady at 2.6% in July.

US

The S&P 500 slid 0.3% over the week.

The Russell 2000 Index of small-cap stocks, widely seen as a barometer for domestic business, has now recorded negative returns for 2017.

Donald Trump disbanded two business advisory groups following a series of resignations in protest of his handling of the events in Charlottesville. The move added to concerns about his ability to enact on his pro-growth election promises.

Minutes of the latest FOMC meeting showed there was considerable variance in opinion as to whether the current weakness of US inflation was temporary.

US retail sales rose 0.6% in July, the biggest increase in seven months and higher than forecasts.

Housing starts fell 4.8% in July. Market commentators had expected a modest rise.

The University of Michigan’s consumer confidence index rose to a seven-month high of 97.6 in early August.

The Empire State’s index of business conditions rose to its highest level since September 2014 in August.

Europe

The FTSE Eurofirst 300 gained 0.5% over the week.

Eurozone GDP expanded by 0.6% in the second quarter, taking the year-on-year growth rate to 2.2% and higher than the initial estimate of 2.1%. Germany, the region’s largest market, kept pace with the Eurozone average, although France, the second-biggest economy, grew only 0.5%. However, Spain had its best performance in three years, expanding 0.9%. In the Netherlands, GDP grew 1.5% in the second quarter alone, its fastest pace of growth since the start of the single currency region in 2000.

Swedish inflation (CPIF) jumped to 2.4% in July, up from 1.9% in June and the highest level since February 2010. The country’s central bank, the Riksbank, has maintained record low interest rates and quantitative easing in the face of a rapidly-growing economy.

Japan

The Nikkei 225 fell 1.3% over the week.

Japan’s GDP expanded at a far stronger-than-expected annualised rate of 4.0% in the second quarter of the year, driven by household spending and business investment. This is Japan’s sixth consecutive quarter of growth and its longest unbroken streak in more than a decade.

Japan’s exports picked up in July, with exports to Asia climbing 14.8% on a year-on-year basis. Exports to North America rose 13% year-on-year, far stronger than the year-on-year growth rate of 7.8% recorded in June.

Pacific Basin

Taiwan’s GDP grew by a larger-than-expected 2.13% year-on-year in the second quarter, driven by improved production and exports. Meanwhile, Malaysia’s second-quarter GDP expanded at a year-on-year pace of 5.8%, helped by stronger growth in both manufacturing and services, while the Philippine economy grew at a year-on-year pace of 6.5%.

Key measures of China’s growth weakened in July. Retail sales grew 10.4% on a year-on-year basis, down from 11.0% in June. Fixed-asset investment slowed to 8.3% year-on-year, slower than the 8.6% increase seen in June and May. Industrial production missed expectations, rising 6.4% in July, compared to 7.6% in June.

Emerging Markets

Central European economies are being boosted by stronger exports to EU countries and low interest rates. Romania’s GDP grew by 5.7% year-on-year in the second quarter, while the Czech Republic grew by 4.5%, Poland by 4.4%, Hungary by 3.6% and Slovakia by 3.1%.

In India, consumer prices rose by more than expected in July, rising 2.36% on a year-on-year basis compared to 1.46% in June.

Bonds

Demand for safe havens pushed bond yields lower. The yield on the 10-year German Bund fell to 0.40%, while the yield on the 10-year US Treasury bond slid to 2.19%.

Amazon raised $16 billion in the fourth-largest US bond sale this year.

Currencies

The euro fell to its lowest level of the month after minutes of the European Central Bank’s latest meeting revealed concerns that a further rise might derail the region’s recovery