The final quarter of 2019 commenced with a broad-based equity markets sell off.
Global equity markets moved lower amid signs of weakening economic activity across a broad range of sectors.
- Global markets experienced an unsettled start to the final quarter of 2019 as investors became increasingly concerned about the health of the global economy and whether growth is now stalling rather than slowing.
- There was high demand for safe-haven assets such as government bonds, gold and currencies such as the Japanese yen, as concerns rose over the potential for a global recession in the next 12 months.
- Technology stocks were under pressure for much of the week as investors rotated away from high-growth names towards more defensive areas of the market.
- The energy sector was also weak as concerns over slowing global growth and the potential to dampen demand suppressed oil prices back to their lowest level since early August.
- The latest Purchasing Managers Index (PMI) survey data was the focal point for much of the week amid signs that the slump in global manufacturing had begun to contaminate the services sectors of advanced economies.
- In the US, disappointing data releases and a weaker than consensus jobs report increased expectations that the Fed is likely to opt for a third consecutive month of easing interest rates. According to CME Group, there is an 81.8% probability of the Fed easing rates at its next FMOC meeting on 30 October.
- UK equities suffered a torrid week as Brexit uncertainty continued to dominate. The FTSE 100 experienced its biggest one-day drop in more than three years on Wednesday, shedding 3.2%, after Boris Johnson told the Conservative party conference there will be no checks ‘at or near’ the border in Northern Ireland as he prepares to offer ‘constructive and reasonable’ last minute Brexit proposals to Brussels. He added that if the two sides failed to reach an agreement there should be ‘no doubt’ that the alternative to his plan was a no-deal departure from the EU.
- European markets and US airline stocks were hit by a WTO ruling that cleared the way for the US to impose $7.5bn of tariffs on European goods to repair the damage done to Boeing by illegal EU aid provided to Airbus. The White House released a list of EU goods it plans to slap with tariffs, including 25% duties on French wine, Scotch and Irish whiskies and cheese.
- The US manufacturing sector contracted for a second consecutive month in September and fell to its lowest level since the global financial crisis, as trade uncertainty continued to weigh on business confidence. However, the real upset in markets came following news that growth in the domestic services sector slowed to its weakest pace in just over three years and was also below expectations.
- Elsewhere, factory activity in the eurozone, UK, Japan and South Korea all were in contractionary territory in September, highlighting long-running concerns over the state of the global economy.
- PMI’s for the services industries in the UK and Germany underperformed economists’ estimates and shrunk below the key expansionary threshold of 50.
- With both manufacturing and services sectors now in outright contraction many market observers continue to question the state of the UK economy ahead of its scheduled departure from the EU at the end of October.
- The string of disappointing economic data from the US and Europe also intensified investors’ concerns that central banks might prove unable to counteract the impact of the ongoing trade war.
- September’s US non-farm payrolls revealed that 136,000 jobs were added, from an upwardly revised 168,000 in August, while the unemployment rate fell to 3.5% hitting its lowest level in 50 years. Average hourly wages remained unchanged for the month.
The Week Ahead
|Tuesday||China Caixin PMI composite; Germany industrial production|
|Thursday||UK industrial production; US 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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