Global Markets Update - Monday 7 August 2017

Posted on 07 Aug 2017

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In a heavy week for data releases, global stockmarkets ended the week slightly higher and bond yields fell. 

United Kingdom

The FTSE 100 gained 2.0% over the week, its biggest weekly rise so far in 2017.

The Bank of England kept interest rates unchanged, with only two votes in favour of raising rates due to the subdued economic environment in the UK. The Bank also indicated that it expected UK inflation to peak at 3% in the autumn.

The purchasing managers’ index for the service sector picked up to 53.8 in July, from 53.4 in June.

The purchasing managers’ index for the construction sector fell to 51.9 in July; its lowest level since August 2016 and substantially below June’s figure of 54.8.

A pick up in exports helped the purchasing managers’ index for the manufacturing sector to increase to 55.1 in July, up from 54.2 in June and the first increase in three months.

US

The S&P 500 rose 0.1% over the week.

Non-farm payrolls rose by 209,000 in July, while June’s data was revised upwards to an increase of 231,000.

The unemployment rate fell to 4.3% in July, from 4.4% in June, matching the 16-year low recorded in May.

Average hourly earnings held steady at a year-on-year rate of 2.5% in July.

Personal income was unchanged in June, lower than the 0.3% rise seen in May.

Consumer spending inched higher by 0.1% in June, also easing from the 0.2% increase seen in May.

The ISM non-manufacturing index fell to 53.9 in July. The fall was much larger than expected and took the index to an 11-month low.

The ISM manufacturing index slipped to 56.3 in July, from 57.8 in August.

The Fed’s preferred measure of inflation, the core personal consumption expenditure index rose 0.1% in June, taking its year-on-year increase to 1.5%.

Discovery Communications bought Scripps Networks Interactive for $14.6bn.

Europe

The FTSE Eurofirst 300 rallied 1.2% over the week.

The eurozone economy expanded by 0.6% in the second quarter; up from 0.5% in the first quarter of 2017.

Headline eurozone inflation held steady at 1.3% in July, but core inflation rose to a four-year high of 1.3%, compared to 1.2% in June.

The eurozone composite purchasing managers’ index eased slightly in July, falling to 55.7 from 55.8 in June. Greece recorded its second month of expanding factory activity for the first time in three years.

German factory orders rose 1% in June, building on the 1.1% increase seen in May.

The Czech National Bank raised interest rates from 0.05% to 0.25%, its first increase since the start of the financial crisis as it tries to dampen inflationary pressures.

Japan

The Nikkei 225 ended the week unchanged.

Real cash earnings, which tend to correlate with household spending, fell 0.8% year-on-year in June; their fastest decline in 24 months.

Pacific Basin

In China, the Caixin-Markit services purchasing managers’ index eased to 51.5 in July, its lowest level in 16 months. However, the Caixin manufacturing purchasing managers’ index jumped to 51.1, up from 50.4 in June. In combination, the composite purchasing managers’ index rose to a four-month high.

The official Chinese manufacturing purchasing managers’ index slipped to 51.4 in July, from 51.7 in June. However, the construction sub-index rose to 62.5, its highest level since December 2013.

Core inflation in the Philippines slowed to 2.8% in June, its lowest pace in almost a year.

Indonesia’s manufacturing sector shrank at the fastest pace in a year in July as factory output saw the sharpest fall in 19 months.

South Korea’s manufacturing sector fell into contraction in July after just one month above the water line as demand stalled and export sales dipped. Meanwhile, consumer price inflation rose to 2.2% in July; its highest level in five years due to rising food prices.

Emerging Markets

India’s central bank cut interest rates by 25bps to 6%, after a drop in consumer prices and an overall slowdown in economic growth. This takes interest rates to their lowest level in six and a half years.

The Nikkei-Markit India purchasing managers’ index of manufacturing activity slipped to 47.9 in July, down from 50.9 in June. This is the lowest level since February 2009 and follows the introduction of the goods and service tax on 1 July.

Venezuela was suspended from South American trade bloc Mercosur. The move follows President Maduro’s decision to push ahead with an election for an all-powerful constituent assembly, which has raised democratic concerns.

Brazil’s President Temer survived a vote in Congress as to whether he should be tried for corruptions allegations.

Bonds

The yield on the 10-year US Treasury bond fell to a mid-week low of 2.218%, before closing the week at 2.28%.

The yield on the 10-year German Bund fell 7bps over the week, its largest weekly fall since April, closing at 0.48%.

The yield on the 10-year gilt slid 5bps over the week to 1.17% after a more dovish Bank of England caused yields to fall to their lowest level in a month.

Currencies

The US dollar rallied as stronger-than-expected non-farm payrolls data was seen to boost the chance of the Fed raising interest rates again this year.