Global markets had a roller-coaster week reflecting investors’ concerns over the likelihood of progress in the US-China trade talks.
More stable economic data helped fears of a global recession to fade
- The week began with global equity markets a little edgy as investors showed concern over the slow pace of any progress in the US-China trade dispute and the escalating protests in Hong Kong.
- In Asia, stocks in Hong Kong suffered their biggest one-day drop in more than three months as news came that a demonstrator had been shot by police during fresh anti-government protests. But despite the major indices closing lower on the first day of the week, the US’ Dow Jones Industrial Index continued its record setting rally buoyed by better news from Boeing after all of its problems linked to the 737 Max debacle.
- This was the start of a topsy-turvy week for equities as markets turned positive on news that President Trump would postpone the proposed 20% tariff on vehicles and auto parts imported from the EU. European equities responded strongly, and the UK equity market was also buoyed by jobs data which revealed that the unemployment rate had ticked downwards to 3.8%, marking its lowest level since 1974.
- But markets soon corrected when news emanated from New York that the trade negotiations had reached an impasse over China’s purchases of US agricultural products and unresolved technology transfers, and President Trump injected fresh concerns over trade as he threatened to raise tariffs ‘substantially’ if no truce is reach with Beijing.
- The end of the week brought signs of an easing in trade tensions between Washington and Beijing and this immediately helped the US equity market which notched up fresh intra-day highs. The S&P 500 index rose 0.6% setting it on course for its first six-week winning streak in two years.
- Across the Atlantic, European stocks also edged up as markets responded to trade sentiment and despite gloomy economic data coming out of Germany, which just managed to avoid entering a technical recession. In the UK, the market direction was influenced by the political backdrop as the general election campaigns began and as the value of sterling fluctuated.
- Just as the equity markets oscillated, so did the traditional safe-haven assets of sovereign bonds and gold. The yield on the benchmark US 10-year Treasury gyrated around the 1.90% level for most of the week but as sentiment turned positive as the week closed the yield pulled back to 1.83%. Gold traded close to its lowest level in three months as the generally upbeat mood prevailed in global markets and as investors rediscovered their animal spirits amid easing geopolitical tensions and signs of stabilisation in the global economy.
- The UK economy avoided falling into recession in the third quarter of the year as data showed that GDP grew 0.3% but was slightly below expectations of 0.4% growth.
- As well as falling UK unemployment numbers, data showed that average weekly earnings (including bonuses) fell to 3.6%, undershooting expectations of 3.8% growth. The figures also showed that the number of vacancies in the UK economy fell by 14,000 to 800,000 in the last quarter, marking the biggest quarterly drop since 2009.
- The forthcoming UK general election injected notable volatility into the price of sterling, as one-month implied volatility increased towards 12%.
- The ONS reported that UK retail sales fell unexpected in October and dipped 0.1% on the month following a flat reading in September.
- Confidence in the US economy rose amongst small business owners in October as recession fears eased. The NFIB’s small business optimism index rose 0.6 points to 102.4 as business owners continued to create jobs, raise wages and expand their businesses.
- US inflation data surprised on the upside and came in at 0.4% for the month of October, beating expectations of a 0.3% rise, reflecting higher energy and medical care prices. The core inflation measure, which excludes food and energy, dipped to 2.3% y/y, from 2.4%, as rental costs eased.
- US Fed Chair, Jay Powell, delivered his speech to the US Senate’s joint economic committee and said that the current stance of monetary policy would probably remain appropriate ‘as long as incoming information about the economy remains broadly consistent with our outlook’.
- There was some positive economic data from the Eurozone as industrial output surprised on the upside, buoyed by domestic consumer goods demand. The measure was up 0.1% in September versus a forecast of a 0.2% drop.
- The German economy grew 0.1% during the third quarter, narrowly avoiding a recession and beat expectations of a 0.1% decline, as the export sector continues to grapple with the fallout from the US-China trade war.
- China’s latest economic figures revealed that retail sales, industrial production and fixed-asset investment all failed to meet forecasts. Chinese retail sales growth fell to 7.2% in October, defying expectations for the measure to remain unchanged from September’s reading of 7.8%. Chinese industrial production came in at 4.7% y/y in October, down from 5.8% in September and well below estimates of 5.4%.
The Week Ahead
|Wednesday||US Fed FOMC minutes|
|Thursday||Eurozone consumer confidence; Japan CPI|
|Friday||US Univ. of Michigan consumer sentiment; US Manufacturing PMI; US Services PMI; Eurozone Manufacturing PMI; Eurozone Services PMI; Japan Manufacturing PMI|
|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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