Global Markets Update Monday 23 April 2018

Posted on 23 Apr 2018

Global stocks gained ground, while bond markets retreated amid fears the Fed would accelerate its path of interest rate increases.

North Korea pledged to suspend nuclear and missile tests.

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United Kingdom

The FTSE 100 rallied 1.4% over the week.

UK inflation fell to 2.5% in March, compared to 2.9% in February and the lowest rate in a year.

Average weekly earnings rose 2.8% compared to a year earlier in February, the first time in a year that they beat inflation. This is the strongest growth recorded since the summer of 2015.

Mark Carney appeared to be cautious on a rate rise in May, referring to a possible economic blow from Brexit and recent softer UK economic data. He said that although several interest rates rises were “likely” over the next few years, any increases would be gradual. His comments weakened sterling which had hit a post-referendum high against the US dollar.

UK retail sales fell 1.2% in March, with the cold weather partly blamed for the weak data.

There was more bad news from the high street. Debenhams reported another slide in profits and sales after freezing weather in late February temporarily closed 100 stores in the UK; House of Fraser called in KPMG to examine its options, including an insolvency process called a Company Voluntary Arrangement (CVA).

Hammerson backed away from its planned £3.4bn takeover of smaller shopping centre rival Intu, citing a mixed response from its shareholders to the deal.

Shire rejected a £42.2bn takeover offer from Takeda, while botox-maker Allergan also disclosed it was interested in the company.

US

The S&P 500 rose 0.8% over the week.

After keeping quiet for the first year of his presidency, Donald Trump’s recent comments on Federal Reserve policy are starting to unsettle markets.

President Trump appeared to undertake another U-turn on the Trans Pacific Partnership, tweeting “While Japan and South Korea would like us to go back into TPP, I don’t like the deal for the United States”.

After three weak months, US retail sales rose 0.6% in March.

Wells Fargo was been fined a record $1bn by two US regulators to resolve investigations into car insurance and mortgage lending breaches.

Tobacco stocks plunged after Philip Morris warned that consumers were being slower than expected in adopting alternative devices, such as ‘vaping’ and those that ‘heat not burn’ tobacco. Tech stocks also weakened towards the end of the week after a major Apple supplier warned of weak demand.

Europe

The Eurofirst 300 gained 0.7% over the week.

The ZEW index of economic sentiment dropped to -8.2 in April, the lowest level since November 2012. 

Angela Merkel rejected Emmanuel Macron’s plans for a European monetary fund.

Japan

The Nikkei 225 jumped 1.8% over the week.

Core inflation in Japan (which excludes food but includes energy costs) rose 0.9% in the year to March, down from an increase of 1.0% in February. This is the first time the measure has fallen since Japan exited deflation in early 2017. Headline inflation rose 1% on a year-on-year basis, down from 1.5% in February, while core-core inflation, which excludes both food and energy, remained unchanged at 0.5%.

Japanese exports rose at a slower-than-expected rate of 2.1% year-on-year in March. Imports fell for the first time since December 2016, sliding 0.6% compared to forecasts of a 5.4% increase.

Pacific Basin

China’s economy grew by 6.8% in the first quarter, comfortably ahead of the official target of 6.5%. However, the strong headline figure mask signs that growth momentum is waning, including weaker factory output and slowing property sales.

The People’s Bank of China cut the required reserve ratio by 1%, amid signs that the economy is slowing.

New housing prices in major Chinese cities grew 4.9% on a year-on-year basis in March, the slowest pace in two years in March. Property sales have softened, lending further credence to expectations of a broader slowdown heading into the second quarter.

Taiwan Semiconductor Manufacturing, one of Apple’s biggest suppliers, warned of “weak demand” from the mobile phone sector, heightening concerns about a slowdown in smartphone sales.

Emerging Markets

President Erdogan called snap elections in Turkey amid growing concerns over the health of the economy which has become increasingly unbalanced. The lira and bonds rallied on the news amid hopes of a reduction in political uncertainty.

Russian stocks surged after Donald Trump backed away from new sanctions on Moscow.

The Mexican peso suffered its worst week in four months as jitters over the upcoming presidential elections set off a bout of profit taking.

Bonds

10-year US Treasury yields rose back above 2.9%, hitting an intraday peak of 2.96% - the highest level since January 2014 - on expectations that the Fed will deliver three, or possibly four, interest rate rises this year. The yield on the two-year Treasury note rose above 2.45%, its highest close since September 2007.

Yields also rose in Europe. The 10-year German Bund yield ended at 0.6%, while the 10-year UK gilt yield closed at 1.52%.

Commodities

Brent crude touched its highest level since 2014, although prices were volatile after President Trump was critical of Opec for driving prices “artificially high”.