Posted on 22 Jan 2018

Global stockmarkets rose as stronger-than-expected Q4 growth in China boosted confidence in the global economy.

However, bonds sold off, affected by higher-than-expected US core inflation data, more hawkish comments from the European Central Banks and news that the Bank of Japan had dialed back its bond purchases. 

Please email us if you would like to receive our weekly newsletter direct to your inbox.

United Kingdom

The FTSE 100 rose 0.1% over the two-week period.

Emmanuel Macron raised hopes that the UK might be able to secure a “special” deal in terms of access to the EU, although he stressed that Britain could not have full access to the single market — including financial services access — unless it applied all of the EU’s rules.

Inflation (CPI) dipped to 3% in December, down from November's rate of 3.1% - a six-year high.

Activity in the construction sector declined at its fastest pace in five years in the three months to November.

Manufacturing output grew 0.4% in November, its seventh consecutive month of expansion. During the three months to the end of November, manufacturing output grew 3.9% compared to the same period in 2016

UK retail sales fell by 1.5% in December compared with November. This is the steepest monthly fall since the EU referendum. Many shoppers appear to have shifted spending to November to take advantage of Black Friday offers.

UK retailers remained under pressure, with Mothercare, Debenhams and Marks and Spencer all reporting disappointing Christmas sales. But food retailers Tesco, Morrison’s and Sainsbury’s reported higher sales.

Public and private sector contractor Carillion collapsed, putting at risk thousands of jobs and placing many of the company’s creditors in financial difficulties.


The S&P 500 advanced 1.9 % over the fortnight.

The US Senate failed to pass a new budget, leading to the shutdown many federal services. This is the first government shutdown since 2013, which lasted 16 days.

As widely expected, the Bank of Canada raised interest rates by 25 basis points, although its accompanying comments were viewed as “dovish” by the markets.

US retail sales rose 0.4% in December, boosting consumer stocks. However, real estate stocks plummeted amid rising bond yields.

Core US inflation rose to 1.8% year-on-year in December, up from 1.7% in November and the fastest pace for nearly a year. Headline consumer prices rose 2.1% year-on-year in December.

President of the New York Fed Bill Dudley indicated that tax reductions would deliver an “extra boost” to the economy in both 2018 and 2019, raising the prospect that the Fed “may have to press harder on the brakes”. He also added his voice to those calling for the Fed to rethink its current target of 2% inflation.

Industrial output rose a far stronger-than-expected 0.9% in December.


The Eurofirst 300 gained 0.9% over the two weeks.

Minutes of the European Central Bank‘s December policy meeting show that favourable data on the economy had led policymakers to drop some their references to the region‘s recovery and instead focus more on what they now viewed as a “continued robust and increasingly self sustaining economic expansion.” The minutes also show that the central bank was planning to revisit its forward guidance early this year.

In Germany, Angela Merkel raised hopes of a new deal between her conservative bloc and the Social Democrats. The SPD will vote on Sunday 21 January as to whether to enter a grand coalition with the Social Democrats.

The European Commission’s headline economic sentiment indicator advanced from the previous month’s 114.8 to 116.0 in December, its strongest level since October 2000.

Eurozone industrial production grew 1% in November, taking the year-on-year rise to 3.2%.

Germany’s GDP grew 2.2% in 2017 – its strongest year since 2011.

S&P upgraded Greece’s long-term sovereign credit rating by one notch to B from B-’. Spain’s credit rating was also lifted to A-.


The Nikkei 225 gained 0.4% over the two-week period.

The Bank of Japan unexpectedly trimmed its monthly purchases of long-term domestic bonds. The BoJ trimmed its purchases of 10-to-25 year debt by ¥10bn to ¥190bn, the first reduction in the sector since December 2016. The central bank also cut its buying of bonds maturing in more than 25 years by ¥10bn to ¥80bn.

Pacific Basin

China's economy grew by 6.9% in 2017. This is the fastest rate in two years and the first time in seven years the pace of growth has picked up.

Chinese exports rose a faster-than-expected 10.9% year on year in December, but imports were weaker than expected, recording a year-on-year rise of just 4.5%.

Chinese consumer prices rose at an annual rate of 2.0% in December, while producer prices rose 4.9% on a year-on-year basis – a nine-year high.

Emerging Markets

Brazil’s stockmarket rose to an all-time high. President Temer ramped up pressure on congress to pass much-needed pension reform after Standard & Poor’s downgraded the country’s credit rating, citing faltering progress on fiscal reform.

Mexican inflation ended 2017 at 6.77% - the highest level since May 2001.


The yield on the 10-year US Treasury bond rose sharply amid reports that China was considering scaling back or halting its Treasury bond purchases. China later denied the report. However, the respite proved temporary as the yield touched 2.65%, the highest level in more than three years, amid growing optimism over the health of the US economy.  The yield on the two-year note moved above 2%, hitting a fresh nine-year high of 2.04%.

More hawkish comments from the ECB caused the yield on the 10-year German Bund to hit a five-month high of 0.57%. Meanwhile, speculation that the Bank of Japan was considering cutting back on its bond purchases caused the yield on the 10-year JGB to rise to 0.08%.

US junk bond issuance has surged so far this year with $4.5bn of new deals bought to the market. This is the strongest start to a year since 2014, according to Dealogic. Demand has also surged with US junk bond funds attracting $2.3bn over the past two weeks, the first consecutive weeks of inflows in three months, according to EPFR. That appetite for riskier investments has helped push risk premiums on high yield bonds the lowest levels since July 2007.


The US dollar sunk to a fresh three-year low against the euro and a four-month trough versus the yen amid mounting speculation that central banks outside the US could begin removing policy accommodation.


Oil prices rose, with Brent crude rising to $70 a barrel for the first time since December 2014. Opec, the cartel of 14 oil-producing nations that accounts for 40% of the world's output, said it would continue to limit supplies.