Global stocks were broadly higher last week, remaining close to year-to-date highs, amid optimism over trade.
Commotion over Brexit continued to dominate sentiment in the UK equity markets.
- Global markets commenced the week on a positive note on hopes that China and the US are moving closer to some form of resolution on the trade front after President Trump indicated that a deal could be signed by mid-November.
- US and Chinese trade representatives are working to complete a ‘Phase One’ trade agreement ahead of a meeting in Chile between presidents Donald Trump and Xi Jinping scheduled for next month.
- In Europe, Brexit was the main point of focus of investors as the UK parliament voted in favour of Boris Johnson’s deal to withdraw Britain from the EU, but subsequently voted against an accelerated timetable to depart predisposing the need to request for an extension beyond the 31 October deadline. By the end of the week, EU ambassadors had yet to reach consensus as to how long the extension should be until there is clarity from Westminster over the timing of a general election.
- Boris Johnson has proposed holding a general election on 12 December but will need cross-party support for this to proceed, as a two-thirds majority is required. The Labour leadership has stated that it will instruct its MPs to abstain in such a vote until the prospect of a no-deal Brexit has been taken off the table.
- Elsewhere, the third quarter earnings season was in full swing with some stocks experiencing hefty moves as results were announced, but equity markets generally edged higher over the week.
- On Wall Street, the S&P 500 ended its third consecutive week in positive territory and came within striking distance of a fresh record high.
- According to the data company, Factset, of the 40% of the companies in the S&P 500 which have reported their Q3 2019 earnings, 80% have reported a positive earnings surprise while 64% have reported a positive revenue surprise.
- Chinese equities were further supported by a large liquidity injection by its central bank. The PBoC injected 250bn yuan (US$35bn) into the financial system ahead of a month-end deadline for companies to pay taxes.
- In terms of sectors, technology, utilities and consumer staples led the way higher, whilst telecoms were subject to some profit-taking.
- Bond yields were relatively stable over the course of the week with the yield on the US 10-year Treasury remaining near the top of its recent trading range at about 1.80%.
- Economic data over the course of last week was mixed.
- In the US, durable goods orders were once again disappointing but preliminary composite PMI data for October recovered slightly from 51 to 51.2.
- In Mario Draghi’s final meeting as president of the ECB, before his successor Christine Lagarde takes over on 1 November, the ECB left rates and monetary policy unchanged. The decision to hold was widely expected but came following yet more disappointing data on the health of the European economy.
- The latest eurozone business sentiment survey, showed a slight month-on-month rise in October but remained only just above the 50 mark that separates growth from contraction. The eurozone composite PMI was 50.2 in October, up slightly from September’s reading of 50.1.
- There was also further negative economic data from Germany with its composite PMI remaining firmly in contractionary territory, recorded at 48.6 for the month of October; this reflected ongoing trade tensions, Brexit uncertainty and issues in the autos sector which continue to weigh on the export-orientated economy.
- Japan’s exports declined at a steeper-than-expected pace in September and marked 10 consecutive months of declines. The persistent weakness has fueled expectations that the Bank of Japan (BoJ) will loosen its monetary policy stance at its next meeting, later this week.
The Week Ahead
|Wednesday||US FMOC rate decision|
|Thursday||Europe unemployment rate; Europe GDP; Japan unemployment rate; BoJ rate decision|
|Friday||China PMI manufacturing; UK PMI manufacturing; US non-farm payrolls; 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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