GLOBAL MARKETS UPDATE - MONDAY 27 MARCH 2017

Posted on 27 Mar 2017

Global stockmarkets lost ground as the Trump rally faded amid concerns over President Trump’s ability to action his election pledges.

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United Kingdom

The FTSE 100 slid 1.2% over the week.

Theresa May confirmed she will trigger Article 50 on 29 March.

Inflation, as measured by the Consumer Prices Index, jumped to 2.3% in February, its highest level since 2013 and up from 1.8% in January, mainly due to higher food and fuel prices. Core CPI rose to 2.0% from 1.6%. The preferred rate of inflation, CPIH, which includes a measure of housing costs and council tax, also rose at a rate of 2.3% in February.

UK retail sales rose 1.4% in February after a 0.5% slide in January. While three-monthly data weakened, on a year-on-year basis, retail sales rose 3.7, compared to 1.0% in January. 

Optimism among manufacturers reached its highest level since February 1995, helped by the fall in sterling which has improved competitiveness.

Next reported its first drop in annual profits in eight years, highlighting the problems facing high street retailers.

US

The S&P 500 lost 1.3% over the week.

President Trump was forced to pull his replacement legislation for Obamacare (Affordable Healthcare Act), as he failed to secure the necessary votes from fellow Republicans. The president said he would now leave Obamacare in place for the time being, and would focus on tax reforms. This led to fears that the new administration might struggle to get other pro-business policies passed. Shares in operators of US hospitals posted their best day of 2017in the wake of the news.

Durable goods orders rose 1.7% in February, after a 2.3% rise in January, due to a sharp rise in demand for transportation equipment.

Europe

The FTSE Eurofirst 300 slipped 0.5% over the week.

The Markit eurozone composite purchasing managers' index for March rose to a six-year high of 56.7, up from February's 56.0. The growth was driven by strong performances from France and Germany's services sectors.

Japan

The Nikkei 225 dropped 1.3% over the week.

The preliminary reading for the Nikkei-Markit purchasing managers’ index dropped to a three-month low of 52.6 in February, down from February’s reading of 53.3.

Emerging Markets

Russia surprised the market when it cut interest rates for the first time in seven months, reducing borrowing costs by 25bps to 9.7%. The Russian central bank said the risk of overshooting the 4% inflation target this year had “abated” with further rate cuts a “possibility” over the coming quarters.

In India, the ruling BJP’s decisive victory in the country’s largest state (by population) has helped the stockmarket surge to new highs amid hopes Prime Minister Modi will use his reinforced political clout to push through reforms that will boost long-term economic growth.

Brazil’s central bank chief predicted the country’s economy will exit recession and reach 3% growth by the end of 2017 driven by easier monetary policy (due to lower inflation) and economic reforms.

Bonds

10-year gilt yields jumping to a five-week high of just under 1.30% following the news that UK inflation had jumped to 2.3%.

The yield on the 10-year US Treasury bond touched a low of 2.40%, its lowest level since the end of February before closing at 2.41%, a drop of 9bps over the week. The yield on the two-year note closed at 1.26%, down 6bps over the week.

High-yield bond spreads rose to 429bps, the highest level since the start of the year. According to EFPR, investors withdrew $5.7bn from junk bond funds last week, the largest outflow since December 2014.

Currencies

Sterling rallied following stronger than expected retail sales data and higher than expected inflation.

The Japanese yen reached its highest level against the US dollar in four months. The euro also approached a four-month high against the dollar.