Global equities closed lower for a second consecutive week amid increasing political uncertainties.
Impeachment proceedings in the US and mixed US-China trade signals supressed sentiment for the week.
- Global equity markets commenced the week unsettled as investors grappled with the implications of the impeachment investigation against President Trump. Democratic House speaker Nancy Pelosi formally initiated proceedings against the US President following a whistleblower complaint alleging he pressured Ukrainian President Volodymyr Zelensky into investigating Democratic lead candidate Joe Biden and his son, by threatening to withhold a $391 million military aid package. The proceedings are unlikely to lead to Trump’s removal from office, unless a two-thirds majority in the Republican controlled senate can be reached.
- Mixed messages relating to the US-China trade dispute led to increased levels of volatility during week. President Trump criticised China’s trade practices, stating he would not accept a “bad deal” only to contradict himself as the week progressed, commenting that a deal “could happen sooner than you think”. Trade negotiations are due to resume on October 10th.
- Elsewhere, the US President signed a partial trade deal with Japan, reducing some US tariffs in exchange for agricultural concessions. Although, the agreement does not guarantee protection for the Japanese autos sector, and several market commentators doubt whether a much broader agreement will be reached.
- The outlook for trade remained in focus amid reports the White House was considering restricting US investment in China and forcing US exchanges to delist shares of Chinese companies.
- European equities closed the week lower as weak data reignited growth fears in the region. The UK’s blue-chip index was an exception as it reached a two-month high on Friday, as overseas earners were supported by a weaker pound. Sterling was under pressure following dovish comments by the Bank of England’s Monetary Policy Committee member Michael Saunders.
- Boris Johnson was dealt another defeat, this time at the hands of the supreme court who ruled that his decision to prorogue parliament in the weeks leading up to the Brexit deadline was unlawful, stating that it should be quashed immediately.
- Oil prices fell with Brent crude experiencing its worst week in seven. Supply fears receded as Saudi Arabia recovered from the recent drone strike quicker than expected while US crude inventories also rose unexpectedly by 2.4 million barrels.
- Gold suffered its third straight weekly decline, owed to reduce demand for haven-assets, as US economic data beat expectations and the US dollar maintained multi-week highs against other major currencies.
- Concerns over the outlook for the Eurozone economy deteriorated further as the composite PMI index, which includes both manufacturing and services, fell to six-year low of 50.4 in September and close to the expansionary threshold of 50. The move lower was attributable to a weaker reading from the services sector, sparking fears that the manufacturing downturn was spreading to services.
- Eurozone economic sentiment weakened in September falling to 101.7, the worst level since February 2015.
- Outgoing ECB President Mario Draghi commented that the eurozone economy was now facing a much more “prolonged sag” than was expected just a few months ago.
- The US manufacturing sector PMI reached a five-month high in September with a reading of 51.0. However, the US consumer confidence index unexpectedly dropped to 125.1 from 134.2 in August.
- Japan’s manufacturing PMI dropped to 48.9 in September, falling at its fastest rate in seven months.
The Week Ahead
|Monday||UK GDP; Europe unemployment rate|
|Tuesday||UK PMI manufacturing; Europe inflation; US ISM manufacturing; Japan unemployment rate; China PMI manufacturing|
|Thursday||Europe retail sales|
|Friday||US unemployment rate|
|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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