Global equity markets moved higher last week amid easing trade tensions.
Central bank stimulus, especially in Europe, also provided support to equity markets.
- Global markets commenced the week on a mixed note, as participants evaluated signs of stimulus measures in the world’s major economies alongside the latest Brexit developments.
- There was a risk-on mood amongst investors, which reduced demand for haven-like assets and sparked a notable rotation into value orientated sectors such as financials.
- Gold prices recorded their third weekly decline. However, many market commentators have said that dovish monetary policy adopted by global central banks along with concerns of a glut in negative-yielding government debt globally will continue to support gold prices over the longer term.
- European markets moved higher after the ECB revealed a substantial bond-buying programme and cut the main deposit rate by 10bps to 0.5%. The new quantitative easing (QE) programme will include €20bn of asset purchases per month for as long as it is deemed necessary.
- The ECB policy meeting was the first in a series of major central bank events as the next Federal Reserve, Bank of England and Bank of Japan meetings are due to take place later this week.
- President Trump renewed his attack on the Fed ahead of the next FMOC meeting, calling for the ‘boneheads’ to cut interest rates to zero or lower. Markets are pricing in an 84.2% chance of a 25bps at this week’s meeting.
- There appeared to be some progress on the US-China trade front as Beijing offered an olive branch and suspended import tariffs on a number of US-exported goods. Items on the list included some cancer drugs, lubricant oils and a handful of chemicals which China either does not produce itself or cannot easily replace by buying from other countries. China has since removed tariffs on big ticket items such as soya beans and pork that it intends to purchase, providing orders are above a certain quantity.
- President Trump responded positively to China’s good-will gesture by pushing back the start date for higher tariffs on $250bn of Chinese goods by two-weeks from the 1 October to 15 October. The US President also signaled that he would consider an interim trade deal with China, although it would not be preferred.
- Oil prices fell as concerns about slower global economic growth, which will likely lead to weaker demand outlook, outweighed hints of progress in the US-China trade dispute. Both OPEC and the IEA said oil markets could end up with a surplus next year, despite a pact to limit supply.
- In the UK, Brexit uncertainty continued to dominate headlines as Boris Johnson lost his second attempt to hold a snap general election to break the impasse. While the PM has vowed not to extend the Brexit deadline beyond 31 October, the anti-no-deal legislation agreed by Parliament received royal assent from the Queen. Parliament is now suspended until 14 October.
- Sterling strengthened against the dollar following speculation the DUP had softened its stance on a Northern Ireland-only backstop.
- Fears of a recession in the UK receded after the ONS reported that GDP grew by 0.3% in July, signaling a positive start to the third quarter of 2019. A technical recession is triggered following two consecutive months of falling GDP and concerns had been stoked by a 0.2% decline in output in the three months to June.
- The UK services sector which accounts for c.80% of the UK economy, grew by 0.3%, while the struggling manufacturing and construction sectors also bounced back, with increases in output of 0.3% and 0.5% respectively.
- There was further positive data released in the form of a lower unemployment rate while average earnings hit an 11-year high. The unemployment rate fell to 3.8% in July while average weekly earnings including bonuses grew by 4%.
- European industrial production came in worse than expected and fell 0.4% in July.
- China’s exports fell more than expected in August, highlighting the pressure on the export sector from the ongoing trade spat with the US. China’s producer price index, a key measure of corporate profitability, fell 0.8% y/y in August but was slightly ahead of expectations. Meanwhile, CPI rose 2.8% y/y.
- In Japan, GDP slowed to 1.3% y/y in the three months to the end of June.
- US core inflation advanced in August to its highest level in more than a year amid higher healthcare costs. Core CPI, which excludes food and energy, rose 2.4% y/y and was the highest reading since July 2018. Headline CPI increased to 1.7% y/y but higher medical care costs were offset by a decline in energy prices in the past four months.
- US retail sales outpaced expectations, demonstrating the resilience in consumer spending, and climbed 0.4% in August and was largely driven by purchases at auto dealers and online retailers.
The Week Ahead
|Monday||China industrial production; China retail sales|
|Tuesday||US industrial production|
|Wednesday||European CPI; UK CPI; FOMC rate decision|
|Thursday||BoJ rate decision; UK retail sales; BoE rate decision|
|Friday||Japan CPI |
|FTSE All Share
|Dow Jones Industrial
|FTSE Eurofirst 300
|MSCI Asia ex Jap $
|MSCI EM $
|MSCI World $
|UK Gov 10 yr
|US Gov 10 yr
|German Gov 10 yr
|Japan Gov 10 yr
|Brent Crude ($/bbl)
|$ per £
|€ per £
|¥ per $
Source: FE Analytics, Financial Times, JP Morgan Asset Management
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