Global markets continued their push higher amid hopes of a ‘phase one’ US-China trade deal.
Fears of a global recession appeared to recede despite mixed economic data.
- Global equity markets began the week on a stronger note as optimism over trade negotiations and positive corporate earnings pushed global stocks higher.
- On Wall Street, the DJIA joined the S&P 500 and the Nasdaq in record territory, as optimism grew over the ‘phase one’ trade deal between the US and China.
- In Asia, Chinese stocks also advanced, supported by buying ahead of a widely expected announcement from the MSCI to boost the weighting of mainland Chinese stocks in its Emerging Markets Index.
- Japanese exporting companies benefited from a softer Yen and were further boosted by the prospects of a new fiscal stimulus package.
- European equities were mostly higher, supported by the rally on Wall Street and broadly solid corporate earnings reports.
- In terms of sectors, financials outperformed as higher bond yields supported banks and weighed heavily on utilities and real estate stocks.
- Fears of a recession receded, evidenced most notably in the bond market as the yield on the US 10-year note surged for a second consecutive week to reach its highest level since the end of July. Optimism over trade also supported the investment grade corporate bond market.
- The mood soured slightly on Wednesday and then continued until the end of the week amid confusion over whether an initial US-China trade agreement would be achieved anytime soon.
- The more cautious tone in the latter part of the week led investors to seek out safe-haven assets such as gold and highly rated sovereign debt
- The Bank of England unsurprisingly stood firm on its current monetary policy stance ahead of December’s general election. However, the UK central bank did cut its growth forecast for the UK economy in 2020 and 2021, with a notable cut in the near-term inflation outlook.
- Japanese Prime Minister Shinzo Abe asked his cabinet to devise the country’s first stimulus package since 2016 on increasing concerns about a global slowdown, the impact of the higher consumption tax and the risk of a hangover from next year’s Tokyo Olympics.
- Chinese exports and imports declined in October, but not as much as markets were anticipating. Dollar denominated exports were down 0.9% y/y while imports were 6.4% lower.
- In Europe, the IHS Markit eurozone manufacturing PMI rose from 45.7 in September to 45.9 in October, beating expectations for a flat reading but remaining below the expansionary threshold of 50.
- Germany’s top economic advisers have cut their growth prediction for the economy for 2019 from 0.8% to 0.5% and for 2020 from 1.7% to 0.9% citing the stalling of global trade and digital disruption as the primary influencing factors. Meanwhile, September’s exports jumped by a 1.5% on a seasonally adjusted basis, beating expectations and recording the highest monthly growth in almost two years.
- The impact of the ongoing trade war on the US economy was revealed as the US international trade deficit narrowed to its lowest level in five-months amid a slowdown in trade.
- There was better than expected services data released from the US that suggested weakness from the manufacturing sector still hasn’t spread to the wider economy. The US services PMI rose to 54.7 in October, up from a three-year low of 52.6 in September. The details of the report were also healthy, with the new orders and employment components of the index rising, although the new export orders sub-index declined.
- Meanwhile, the US manufacturing sector contracted for a third consecutive month but moved above September’s 10-year low to reach 48.3 in October.
The Week Ahead
|Tuesday||UK unemployment rate|
|Wednesday||US CPI; UK CPI; Japan GDP |
|Thursday||Europe GDP; China retail sales; China industrial production |
|Friday||US retail sales; Europe 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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