GLOBAL MARKETS UPDATE - TUESDAY 2 JANUARY 2018

Posted on 02 Jan 2018

The FTSE All-World index closed 2017 with its biggest annual increase since 2009, amid increasing optimism over global growth.

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United Kingdom

UK equities rose around 12% over the year. Both the FTSE 100 index of leading blue chip companies and the FTSE 250 closed the year at record highs.

Real disposable incomes in the UK grew just 0.2% in the third quarter of 2017 as the weak pound continued to fuel inflation.

GfK’s consumer confidence index slipped to minus 13 in December, its lowest level since December 2013.

Michel Barnier, the EU’s Brexit negotiator, said that any transition deal for the UK would have to end by 2021, with the UK remaining under the EU’s legal regime until that date.

US

US equities rallied around 22% over the year. The S&P 500 Index posted a positive return in every month, including dividends, and has now seen 14 months of uninterrupted growth – its longest positive run on record.

The US Senate approved plans for $1.5 billion of  tax cuts in the most sweeping overhaul of the US tax system in more than three decades.

The core personal consumption expenditures price index, the Fed’s preferred measure of inflation, climbed 1.5% year on year in November, up from the 1.4% rate it has held over the previous two months.

US third-quarter GDP was revised down to 3.2%, from 3.3%. However, the economy is still accelerating at the quickest pace in nearly three years.

Sales of  new US homes touched a 10-year high in November, while existing home sales grew at the fastest rate in almost 11 years. In addition, US home construction jumped to a 13-month high in November.

Europe

Euro-zone equities advanced around 15% over 2017.

Spanish stocks fell after the three pro-independence parties in Catalonia won 70 out of 135 seats in the regional parliament, above the threshold of 68 needed to form a government, which raised fears of further heightened tensions with Madrid.

Economic confidence in the eurozone ticked up to the highest since October 2000 in December, with the European Commission’s sentiment index reached 114.6. The European Commission’s consumer confidence index reached its highest level since January 2001 in December.

The Ifo index of German business sentiment slipped slightly in December, but remained near multi-year highs.

German inflation rose 1.6% on a year-on-year basis in November, its highest calendar increase in five years.

Credit rating agency Fitch upgraded Portugal’s credit rating by two notches, causing bond yields to fall to their lowest levels in two years.

Sweden’s central bank said it was to end its bond-buying programme and lifted its inflation forecasts.

Italy’s president dissolved parliament, launching a two-month election campaign ahead of elections in early March.

Japan

Japanese equities rose around 20% over the year.

The unemployment rate in Japan dropped to a 24-year low of 2.7% in November.

SoftBank is to invest around $8bn for a 15% stake in Uber.

Pacific Basin

Credit rating agency Fitch raised Indonesia’s credit rating by one notch to BBB.

The cost of new housing in China decelerated for a twelfth straight month in November, marking the slowest rise since early 2016.

Emerging Markets

Emerging market equities outperformed developed market equities, rising around 31% over the year.

In South Africa, financial markets reacted positively to the news that deputy president Cyril Ramaphosa had been elected the new leader of the ruling African National Congress.

Bonds

10-year US Treasury yields touched nine-month highs of just under 2.50%, before closing the year at just above 2.4%.

10-year German Bund yields rose back above 0.4%.

Italian 10-year yields jumped to almost 2%, their highest levels since October, amid fears that March’s elections will result in a hung parliament.

Commodities

Copper prices hit four-year highs amid strong demand from China.

Currencies

The US dollar ended 2017 with the weakest returns in the G10 block.