GLOBAL MARKETS UPDATE - MONDAY 24 JULY 2017

Posted on 24 Jul 2017

In a quiet week for data releases, the euro continued to climb and the US dollar weakened as investors looked to central banks for clues as to the timing of future policy moves.

United Kingdom

The FTSE 100 rose 1.0% over the week.

Headline inflation fell for the first time since October 2016, slipping back to 2.6% in June from a four-year high of 2.9% in May. Core inflation also softened from 2.6% in May to 2.4% in June. The data was seen as lowering the chances of a rise in interest rates in August.

UK retail sales rose 0.6% in June as the hot weather drove sales of clothing and shoes up.

A ‘softer’ Brexit, including an extended transition period, looked increasingly likely as the UK indicated it would be prepared to extend the right to free movement of EU citizens beyond March 2019.

US

The S&P 500 gained 0.5% over the week.

The Philadelphia Federal Reserve’s manufacturing index fell to 19.5 in July from 27.6 in June. Survey data from the New York Fed also pointed to a significant pull back in the growth rate in that state’s factory industry.

President Trump had a torrid week, suffering another setback in his attempt  to replace Obamacare. In addition, the investigation into possible ties between Donald Trump’s election campaign and Russia was said to be widened to include transactions involving the president’s businesses. Both President Trump’s son and son-in-law are due to testify next week.

Microsoft quarterly profits nearly doubled to $5.3bn, after growth from its cloud computing business.

Europe

The FTSE Eurofirst 300 slid 1.8% over the week as sentiment was hurt by a rise in the euro.

The European Central Bank left its interest rates on hold and maintained that its stimulus measure will remain in place “until the end of December 2017, or beyond”, and until inflation is on a clear upward path. However, the market chose to ignore this more hawkish tone, focusing instead on Mario Draghi’s apparent relaxed attitude to the euro’s rise which he said had not counterbalanced the ECB’s accommodative stance.

Headline eurozone inflation fell to 1.3% in June, down from 1.4% May. Core inflation rose to 1.1% in June, up from 0.9% in May. 

The ZEW index of German economic confidence dipped slightly in July, falling to 86.4 from 88 in June.

Japan

The Nikkei 225 slid 0.1% over the week.

The Bank of Japan pushed back the target date for reaching its inflation goal to “around fiscal 2019” in the wake of underwhelming consumer price growth during the first half of 2017. The central bank also kept its cap on 10-year JGB yields.

Pacific Basin

Australian banks surged after new capital requirements were less onerous than had been expected.

China’s economy grew 6.9% on an annualised basis in the second quarter, the same as in the first quarter of the year, and ahead of the government’s official target of “around 6.5%”.

Chinese retail sales grew 11% year on year in June, up from May’s rate of 10.7%.  Fixed-asset investment grew 8.6% year on year during the six months ending June, unchanged from May’s reading, while  industrial production was up rose 7.6% year on year.

Chinese small caps slid to a 30-month low, due in part to tighter regulation from the Chinese authorities.

Emerging Markets

Emerging market equities, as measured by the MSCI EM index, hovered near their highest levels in 27 months, helped by further signs of strength in China.

South Africa’s central bank cut interest rates for the first time in five years, reducing rates by 25bps to 6.75%. The move is aimed at boosting the economy, which slipped into recession earlier this year. News that inflation had fallen further into the official target band of 3-6% also helped; inflation fell to 5.1% in June.

Bonds

The yield on the 10-year German Bund fell 9bps over the week, closing at 0.50%. Peripheral eurozone bond spreads tightened, with 10-year Italian bond yield falling 22bps over the week. Meanwhile, Greek bonds rallied to post-crisis highs this week as the country eyes the prospect of a return to the debt markets for the first time in three years.

The yield on the 10-year US Treasury bond closed the week 8bps lower at 2.254%.

Currencies

The euro hit a two-year high against the US dollar as investors digested comments from the European Central Bank. The Australian dollar also jumped as investors interpreted minutes of the Reserve Bank of Australia’s latest rate-setting meeting as hawkish. The central bank commented that it believe a neutral level for interest rates was 3.5%.