Global Markets Update Tuesday 8 May 2018

Posted on 08 May 2018

The US dollar strengthened as weak economic data in the UK and eurozone caused investors to reassess the chances of rate rises. In contrast, US inflationary pressures continued to accelerate.

 Please email us if you would like to receive our weekly newsletter direct to your inbox.

 

United Kingdom

The FTSE 100 rose 0.9% over the week.

Weak economic data reduced the odds of the Bank of England raising rates again in May.

The IHS Markit/CIPS services purchasing managers' index rose to 52.8 in April, up from 51.7 in March.

The IHS Markit/CIPS manufacturing purchasing managers' index fell to a 17-month low of 53.9 in April, down from 54.9 in March.

The IHS Markit/CIPS construction purchasing managers' index rose to 52.5 in April, from 47.0 in March which was a 20-month low due to weather-related disruption.

US

The S&P 500 fell 0.5% over the week.

The Trump administration demanded that China cut its trade surplus with the US by $200bn.

The Federal Reserve held interest rates unchanged but said that price growth had moved closer to its target. Investors took the comments to signal that the Fed is getting more confident in the inflation outlook as it prepares for further increases in short-term interest rates in the coming months.

The core PCE index, the Fed’s preferred measure of inflation, rose 1.9% on a year-on-year basis in March, up from 1.6% in February.

The US economy added a lower-than-expected 164,000 jobs in April, although the unemployment rate to 3.9%, the first time it has fallen below 4% since 2000.

Average hourly earnings rose 2.6% on a year-on-year basis in April.

The Institute for Supply Management’s non-manufacturing index slid to 56.8 in April, down from the 58.8 recorded in March and the weakest reading in four months.

The Institute for Supply Management’s manufacturing purchasing managers' index fell for the fourth successive month in April, reaching a nine-month low of 57.3, compared to 59.3 the previous month.

Marathon Petroleum bought rival refiner Andeavor in a $36bn deal.

Shares in both Sprint and T-Mobile tumbled as they finally agreed to merge after years of speculation.

Apple shares closed the week at a record high, recording their best week in more than six years, after veteran investor Warren Buffett announced he was increasing his stake in the iPhone maker.

Europe

The Eurofirst 300 gained 0.6% over the week.

Eurozone GDP growth slowed to 0.4% in the first quarter of 2018, the slowest pace in 18 months and compared to 0.7% expansion in the final quarter of 2017.

Eurozone retail sales grew just 0.1% in March, taking the year-on-year increase to 0.8%, far lower than the 1.8% rate of increase recorded in February.

Eurozone inflation slipped to 1.2% in April, compared to a rate of 1.3% in March. Core inflation slumped to 0.7%, compared to a reading of 1.0% in March.

German inflation eased to 1.4% in April, compared to 1.5% in March.

German retail sales fell 0.6% in March, the fourth successive monthly decline.

The final reading of Germany’s composite purchasing managers’ index slid to a 19-month low at 54.6, down from March’s 55.1 and below a flash estimate of 55.3.

Japan

The Nikkei 225 closed the week unchanged, with the market shut for much of the week due to public holidays.

The Nikkei-Markit services purchasing managers’ index rose to a six-month high of 52.5 in April, compared to 50.9 the previous month.

Pacific Basin

The Reserve Bank of Australia held interest rates at 1.5% as expectations as wage growth and inflation remain low.

The Caixin-Markit purchasing managers index rose to 52.9 in April from the 2018 low of 52.3 in March. However, but export orders shrank and concerns over subdued demand and the outlook for exports weighed on industry confidence. China’s official manufacturing PMI, which concentrates on larger, state-owned manufacturers and eased to 51.4 in April.

In South Korea, the Nikkei-Markit manufacturing purchasing managers’ index dipped to 48.4 in April from 49.1 in the previous month, its lowest since March last year, due to slower sales for electronics and automobiles. Inflation rose 1.6% in April, up from 1.3% in March.

The Nikkei-Markit manufacturing purchasing managers’ index for Indonesia climbed nearly a point in April to 51.6, its highest level since July 2016 with improving domestic demand driving up output and new orders, although concerns about a possible slowdown weighed on companies’ confidence.

In Thailand, inflation rose to 1.07% in April, the first time in a year that it has been above 1%.

The Nikkei Taiwan manufacturing purchasing managers’ index slowed to a six-month low of 54.8 in April, down from 55.3 the previous month, as both output and new work rose at their weakest rates since October.

Emerging Markets

Argentina's central bank raised interest rates to 40%, the third rise in eight days to protect the peso which had continued to fall sharply. Interest rates were at 27.25% only a week before.

Standard & Poor’s cut Turkey’s credit rating by a notch, pushing it further into junk territory, citing concerns about high inflation as the lira weakens, a deteriorating current account and fiscal deficit. The Turkish lira hit a fresh record low after inflation rose to a five-month high of 10.85%, despite April’s rate rise.

Bonds

The yield on the 10-year US Treasury bond closed the week at 2.95% while the yield on the 10-year German Bund closed at 0.54%. Gilt yields also eased with the yield on the 10-year UK benchmark bond closing the week at 1.40%.