Global Markets Update Tuesday 25 September 2018

Posted on 25 Sep 2018

The classification of some of the favoured FAANG stocks was changed as of 21 September, with the telecoms sector of the S&P 500 being renamed and expanded to include all ‘communication services’ stocks. Companies such as Netflix, Comcast and Walt Disney are moving from consumer discretionary into the new sector and will be joined by Alphabet, Facebook and Twitter from the information technology sector. On 28 September, MSCI is following suit, meaning Chinese stocks Baidu and Tencent are moving from information technology to communication services, as are NetEase and South Korea’s Naver, while Alibaba, often viewed as China’s Amazon, is moving from information technology to consumer discretionary.  Meanwhile, Naspers, a South African media company that owns a large stake in Tencent, is also moving to communication services.

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United Kingdom

The FTSE 100 rose 2.5% over the week.

Theresa May’s Chequers plan for Brexit was in tatters after European leaders universally criticised the approach, saying it “would not work”.

UK inflation, as measured by the consumer prices index, rose by a stronger-than-expected 2.7% year-on-year in August, up from 2.5% in July.

UK retail sales rose a stronger-than-expected 0.3% in August, taking the year-on-year increase to 3.3%.

Comcast won a blind auction for Sky, outbidding rival Fox with a bid that valued the company at more than £30 billion.

US

The S&P 500 gained 1.0% over the week.

The US administration imposed a 10% tariff on an additional $200 billion of Chinese imports, meaning more than half of all Chinese imports now carry tariffs. In retaliation, Beijing slapped duties of up to 10% on $60 billion of American imports.

Europe

The Eurofirst 300 increased 1.9% over the week.

The flash estimate of the IHS eurozone composite purchasing managers’ index for September slipped to 54.2, from 54.5 in August and the second weakest pace of growth since September 2016. The survey revealed that business optimism remained close to two-year lows, with new orders falling to a two-year low and firms reluctant to take on new staff.

The European Commission’s estimate of eurozone consumer confidence fell to its lowest level in September since May 2017.

Germany’s manufacturing purchasing managers’ index slipped to a two-year low in September, although service sector activity remained robust.

Norway’s central bank raised rates for the first time since 2011, lifting its main interest rate by 25bps to 0.75%. However, the krone subsequently dropped after the Bank reduced its expectations for rate rises next year.

Japan

The Nikkei 225 rallied 3.4% over the week.

Shinzo Abe won a third term as leader of the governing Liberal Democratic Party, enabling him to stay in office for another three years.

Japan’s headline inflation rate hit a six-month high, rising at a year-on-year rate of 1.3% In August. The core inflation rate, which excludes food but includes energy, rose to a year-on-year rate of 0.9% in August. This was the fastest pace since March. The core-core rate, which includes both energy and food, rose at a year-on-year rate of 0.4%.

The Nikkei-Markit Japan flash manufacturing purchasing managers’ index hit a three-month high of 52.9 in September, from 52.5 in August. However, business confidence dropped to a 22-month low due to concerns over the uncertain trade environment.

Emerging Markets

Argentina's economy shrank by 4.2% in the second quarter, its sharpest year-on-year slowdown since 2014.

South Africa’s central bank kept interest rates on hold after inflation eased to a lower-than-expected 4.9%, comfortably within the bank’s target range of 3-6%.

Turkey’s finance minister unveiled plans to fight the country’s currency crisis, promising to cut public spending by nearly $10bn in a sweeping austerity programme that would put the brakes on an overheating economy.

Bonds

The yield on the 10-year US Treasury bond rose back above 3.0%, touching 3.09% - its highest level since May. The yield on the two-year bond rose to 2.80%.

In the US, the yield for the overall high-yield bond market fell below that of European high-yield bonds – even though the US market is of lower credit quality.

Currencies

The British pound was volatile, rising on stronger-than-expected inflation and retail sales data, as well as optimism that a meeting between the UK and European leaders in Salzburg would confirm that progress was being made in the Brexit negotiations.

However, investors’ expectations were dashed when the EU presented a united front saying the UK’s “Chequers” proposal would not work. Sterling fell sharply on the news, suffering its biggest one-day fall in more than a year, as Theresa May’s uncompromising stance following the meeting was seen to raise the chance of a no-deal Brexit.