Global Markets Update Monday 29 October 2018

Posted on 29 Oct 2018

Global stocks plunged amid concerns over trade tariffs, mounting geopolitical risks, global growth and potentially peaking corporate earnings. In contrast, safe havens such as US Treasuries, the Japanese yen and gold rallied.

Technology stocks once again led the sell-off amid fears the sector could be hurt the most by any downturn in global growth.

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United Kingdom

The FTSE 100 dropped 1.6% over the week.

Chancellor Philip Hammond presents his budget on Monday, 29 October.

Lloyds Banking Group said it was drawing up plans to buy back almost £2 billion of its shares in 2019, doubling the amount it has bought in 2018.

US

The S&P 500 plunged 4.6% over the week. The drop took the index’s decline since its peak on 21 September to more than 10% (the typical definition of a correction) and put the index on course for its worst month since the financial crisis a decade before. The index is now in negative territory on a year-to-date basis.

The US economy grew by a stronger-than-expected annualised rate of 3.5% in the third quarter. Activity was driven by consumer and government spending, with household spending the strongest since late 2014, although lower exports weighed on growth, after a surge earlier in the year as firms rushed shipments to beat tariffs. Taken with the 4.2% growth rate in the second quarter, this is the strongest six months for the US economy in four years.

The core Personal Consumption Expenditure Index, the Federal Reserve’s preferred measure of inflation, eased by more than expected, coming in at 1.6% in the third quarter, down from 2.0% in the second quarter.

While third-quarter US earnings have so far exceeded expectations, investors are fearful that the backdrop will now become tougher due to factors including the Trump administration’s protectionist trade policies, the prospect of further rate rises by the Federal Reserve, and the strong US dollar.

Amazon was one of the biggest losers over the week. Shares in the e-commerce giant fell more than 7%, after the firm forecast weaker sales growth than expected for the upcoming Christmas season. Alphabet also weakened as it revealed that its advertising business had slowed more than expected in the third quarter.

Industrial bellwethers Caterpillar and 3M unnerved investors when their third quarter results disappointed, highlighting concerns about the impact of trade tariffs on corporate profits.

Altria said it would stop selling most flavoured vaping products after the US FDA threatened an outright ban on flavoured nicotine products to combat “epidemic” levels of teenage vaping.

Europe

The Eurofirst 300 lost 2.4% over the week.

The European Central Bank confirmed it would stop its asset-purchase programme by the end of this year.

Italy held onto its investment-grade credit rating, surprising many who had feared that the nation’s sovereign debt would be downgraded to junk status.

The flash estimate of the eurozone composite purchasing managers’ index fell to 52.7 in October, down from 54.1 in September, and the lowest figure for 25 months. The slowdown was led by exports and reflected signs that the global trade war is having broad repercussions on the eurozone economy.

The European Commission’s estimate of consumer confidence edged up by 0.2 points between September and October to -2.7 points.

Japan

The Nikkei 225 fell 6.0% over the week. The Topix index has now fallen almost 10% since the start of October, placing it on course for its worst month since June 2016.

The Nikkei-Markit manufacturing purchasing managers’ index rose to 53.1 in October compared to 52.5 in September. This marked the strongest improvement in business conditions in six months.

Pacific Basin

Asian stockmarkets continued to fall over the week, putting them on track for the worst month in two years. The tech-heavy Taiwan stockmarket looks to record its worst month in a decade, with shares in Taiwan Semiconductor Manufacturing Company, which supplies chips to Apple, down 13% so far in October.

South Korea’s economy grew by a slower-than-expected 2.0% on a year-on-year basis in the third quarter due to shrinking investment in construction and business facilities.

Bonds

The yield on the 10-year US Treasury bond fell to 3.07%, its lowest yield since the start of October, as investors favoured safe havens amid the stockmarket weakness. The yield on the 10-year German Bund closed the week at 0.35%.

Netflix raised just over $2 billion through junk bond sales to help fund new content.

Commodities

Oil prices slumped, with Brent crude approaching $75 a barrel, its weakest level since early September. Saudi Arabia said it was raising oil production to record levels and that it planned on doing everything it could to keep markets well supplied.

Currencies

The Canadian dollar rose after the country’s central bank raised interest rates, as expected, and struck a hawkish tone in its comments. This is the third time this year that The Bank of Canada has raised rates.