Week in Markets (Week Ending February 17, 2019)

February 26, 2019


  • Global equity markets rose over the week. Investor sentiment picked up on the back of progress in U.S.-China trade talks and further dovish comments from the Fed, with Federal Reserve Governor Brianard suggesting that the wind-down of the Fed's balance sheet will end later this year. 
  • A potential U.S. government shutdown was avoided as the U.S. President Donald Trump signed a funding bill for the remainder of the year. However, President Trump also declared a national emergency in a bid to secure funds for his U.S- Mexico Border wall. There was further progress in the U.S.-China trade talks with both sides reporting good progress. President Trump indicated his willingness to extend the 90-day trade war truce between the U.S. and China by 60 days if they are close to a breakthrough.
  • The S&P 500 index rose by 2.6%, outperforming the MSCI World index which rose by 2.3%. On a year-to-date basis, the S&P 500 index outperformed the MSCI World index (11.0% vs 10.0%).  
  • US Large Cap stocks underperformed Small Cap stocks over the week as the S&P 500 index rose by 2.6% and the Russell 2000 index rose by 4.2%. On a year-to-date basis, the S&P 500 Index has underperformed the Russell 2000 Index (11.0% vs. 16.5%). Growth stocks and Value stocks rose by 2.5% and 2.6% respectively over the week as measured by MSCI USA Growth and Value Indices. On a year-to-date basis, Growth stocks have outperformed Value stocks (12.6% vs 10.0%).


  • The 10-year US treasury yield rose by 3bps to 2.67% and the 30-year US treasury yield rose by 2bps to 3.00%. The 20-year TIPS yield fell by 1bp to 0.96% and the 20-year breakeven inflation rate rose by 3bps to 1.88%.    
  • The spreads on the Bloomberg Barclays Capital Long Credit Index fell by 1bp to 175bps and the Bank of America Merrill Lynch US Corporate Index fell by 2bps to 132bps. The US high yield bond spread over US treasury yields fell by 20bps to 412bps. The spread of USD denominated EM debt over US treasury yields fell by 2bps to 360bps over the week.


  • The S&P GSCI rose by 3.3% in USD terms over the week. The energy sector rose by 5.9% as the price of WTI Crude oil went up by 5.4% to US$56/BBL, as reports indicated lower oil production in OPEC members and Russia and US sanctions hit Venezuela's oil exports. Industrial metals fell by 0.9% as copper prices fell by 0.3% to US$6,190/MT. Agricultural prices fell by 0.8% and gold prices rose by 0.1% to US$1,317/Oz.   


  • The US dollar appreciated against major currencies (except the Canadian Dollar). The US dollar appreciated by 0.7% against sterling, ending the week at $1.28/£. The US dollar appreciated by 0.6% against the euro, finishing the week at $1.13/€. The US dollar appreciated by 0.7% against the Japanese yen, ending the week at ¥110.56/$. The US dollar remained broadly unchanged against the Canadian dollar, ending the week at C$1.33/$.    

Economic Releases

  • In the US, the monthly Consumer Price Index (CPI) was unchanged in January against expectations of a 0.1% increase. On an annual basis, consumer prices increased by the slowest pace since June 2017 at 1.6%. Although slightly ahead of the forecasted 1.5% increase, inflation continued on a downward trend, falling from 1.9% recorded in the previous month. Core inflation, which excludes volatile food and energy components came in at 2.2% matching December reading and ahead of the 2.1% forecasted. Real average weekly earnings rose by 1.9% over the year to January, following the upwardly revised 1.4% growth in December. Despite relatively healthy wage growth, the advance reading of US retail sales for December pointed to a moderation in the previously robust consumer spending in the US with sales declining the most since September 2009. The -1.2% reading was well below consensus estimates of sales growth remaining at 0.1%. Furthermore, industrial production fell by 0.6% in January against an estimated 0.1% increase, marking the first fall in eight months. 
  • In the Euro Area, the similar theme of slowing economic momentum was reflected in last week's economic releases. Industrial production fell by a further 0.9% in the month of December, following the 1.7% fall in November and came in below the estimated 0.4% contraction. The German economy avoided a technical recession (defined as two successive quarters of contraction), as its posted flat economic growth in Q4 2018 following a 0.2% contraction in Q3.
  • Japanese economic growth rebounded in Q4 2018 after being impacted by a series of natural disasters in the previous quarter. Supported by a recovery in business spending, preliminary readings showed that the economy grew at an annualised 1.4%, matching consensus estimates but not fully offsetting the annualised 2.6% contraction in the previous quarter. Core machinery orders fell by 0.1% in December, better than the estimated 1.0% fall. In addition, the Tertiary Industry index fell 0.3% in December against a forecasted decrease of 0.1% but better than the previous month’s downwardly revised 0.4% decrease. 
  • In China, exports rebounded by 9.1% in the year to January, beating forecast of a 3.3% decline and well above 4.4% contraction in the previous month. Over the same period, imports shrank by 1.5%, significantly easing from the previous decline of 7.6% and better than the estimated 10.2% decrease. The trade surplus came in at US$39.16bn, ahead of analyst estimates of a US$34.30bn surplus but below US$57.06bn recorded in the previous month. Elsewhere, consumer price inflation slowed to 1.7% in the year to January, against analyst forecasts of remaining at 1.9%. Amid a backdrop of greater efforts by the central government to stimulate the economy, new loans in China surged to a record high in January with ¥3,230bn loans extended over the compared to estimates of ¥3,000bn and the previous reading of ¥1,080bn.

Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. Click here for index descriptions.

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