Week in Markets (Week Ending April 14, 2019)

April 15, 2019

Equities 

  • There were further positive reports in relation to the U.S.-China trade talks, with an agreement between the two nations appearing to be getting closer. U.S. Treasury Secretary Steven Mnuchin stated that both countries have agreed on the nature of enforcement of the deal and have agreed to set up “Enforcement Offices” which will monitor the implementation of the deal. Furthermore, Secretary Mnuchin agreed that the enforcement mechanism will be reciprocal, i.e. the U.S. will also face repercussions from China if it fails to comply with the terms of the agreement. Elsewhere, the U.S. threatened to impose tariffs on US$11bn worth of European Union products in response to the World Trade Organization (WTO) judgment that EU subsidies to support Airbus are illegal. 
  • The International Monetary Fund (IMF) downgraded its global growth forecasts for 2019 and 2020 to 3.3% and 3.6% respectively from 3.7%. Elsewhere, the U.S. Federal Reserve confirmed in its meeting minutes that policy rates would likely be unchanged for the remainder of the year but that the future path thereafter is balanced.
  • The S&P 500 index rose by 0.6%, marginally outperforming the MSCI World index, which rose by 0.5% over the week. On a year-to-date basis, the S&P 500 index has outperformed the MSCI World index (16.7% vs 15.5%).
  • U.S. Large Cap stocks outperformed Small Cap stocks over the week as the S&P 500 index rose by 0.6% while the Russell 2000 index rose by 0.2%. However, on a year-to-date basis, the S&P 500 index has underperformed the Russell 2000 Index (16.7% vs. 18.0%). Growth stocks and Value stocks rose by 0.7% and 0.5% respectively over the week as measured by the MSCI USA Growth and Value Indices. On a year-to-date basis, Growth stocks have outperformed Value stocks (20.0% vs 14.0%).

Bonds 

  • The 10-year and the 30-year U.S. treasury yields both rose by 6bps each to 2.56% and 2.97% respectively. The 20-year TIPS yield rose by 2bps to 0.81% and the 20-year breakeven inflation rate rose by 4bps to 1.97%. 
  • The spreads on the Bloomberg Barclays Capital Long Credit Index fell by 8bps to 159bps and the Bank of America Merrill Lynch US Corporate Index fell by 5bps to 118bps. The US high yield bond spread over US treasury yields fell by 18bps to 368bps over the week. The spread of USD denominated EM debt over US treasury yields was unchanged at 345bps over the week.

Commodities   

  • The S&P GSCI index rose by 1.0% in USD terms over the week. The S&P GSCI Energy index rose by 1.7% as the price of WTI Crude oil rose by 1.3% to US$64/BBL. Industrial metal prices fell by 0.1% despite copper prices rising by 1.1% to US$6,490/MT. Agricultural prices fell by 0.3% and gold prices rose by 0.5% to US$1,294/Oz.   

Currencies 

  • The U.S. dollar depreciated against most major currencies (except Japanese yen) over the week. The U.S. dollar depreciated by 0.7% against sterling, ending the week at $1.31/£. The U.S. dollar depreciated by 0.8% against the euro, finishing the week at $1.13/€. The U.S. dollar appreciated by 0.2% against the Japanese yen, ending the week at ¥111.97/$. The U.S. dollar depreciated by 0.3% against the Canadian dollar, ending the week at C$1.33/$.   

Economic Releases

  • In the U.S., consumer price inflation picked up in March and rose at its fastest pace in fourteen months with the Consumer Price Index (CPI) meeting expectations of a 0.4% increase following February's 0.2% rise. On an annual basis, inflation accelerated to 1.9% from 1.5% while core inflation, which excludes volatile food and energy components, missed analyst forecasts of remaining at 2.1% and fell back to 2.0%. Real average weekly earnings growth slowed to 1.3% in the year to March, following on from the 1.6% growth recorded in the year to February. The Federal government February monthly deficit narrowed to -$146.9bn from -$208.7bn against analyst expectations of a $181.0bn deficit. Elsewhere, the University of Michigan's Consumer Sentiment index missed consensus estimates of a marginal 0.2-point dip and fell by 1.5 points to 96.9 from 98.4. 
  • In the UK, the economy grew by 0.3% in the three months to February, matching the upwardly revised growth recorded in January and ahead of 0.2% growth expected. The growth was largely supported by stockpiling by manufacturers ahead of Brexit. February industrial production and manufacturing production rose 0.6% and 0.9%, slowing from the upwardly revised 0.7% and 1.1% growth recorded in January. However, both the readings were well ahead of the 0.1% and 0.2% growth expected by the analysts. The trade deficit narrowed to £4.8bn in February from an upwardly revised deficit of £5.3bn. Elsewhere, the Rightmove House Price Index fell by 0.1% in the year to April, following the 0.8% fall recorded previously.
  • Eurozone industrial production fell by 0.2% in February, reversing the upwardly revised 1.9% increases recorded in January but less than the 0.5% fall expected.  The Sentix Investor Confidence index fell to -0.3 in April but was better than the previous reading of -2.2 and expected reading of -2. The German trade surplus increased to €17.9 billion in February from €14.6 billion in January but fell from €18.3 billing in February last year. Both export and import growth missed expectations, falling by 1.3% and 1.6% respectively from 0.1% and 1.4% growth in the previous month.
  • In Japan, core machinery orders rose for the first time in four months, rebounding by 1.8% in February from a 5.4% drop in the previous month. However, the reading failed to meet consensus estimates of a 2.8% increase. The provisional reading for machine tool orders in March showed a continuation of a downward trend, which fell by a further 28.5% after February's 29.3% decline. The consumer confidence index fell to its lowest level since February 2016 as it declined to 40.5 in March, below the previous month and forecasted reading of 41.5.
  • In China, exports sharply rebounded by 14.2% in the year to March, significantly ahead of analyst forecasts of 6.5% and the 20.8% decline seen in the previous month. Conversely, a similar upturn was not shared by Chinese import growth which missed forecasts of a slight uptick in March and dropped by a further 7.6% from the previous decline of 5.2%. Consequently, the trade surplus widened sharply to US$32.65bn from US$4.08bn and well ahead of analyst estimates of a US$5.70bn surplus. Meeting analyst expectations, consumer price inflation rose to a five-month high with inflation accelerating to 2.3% in the year to March from 1.5% previously. This surge in inflation came due to rising food prices. Amid a backdrop of greater efforts by the central government to stimulate the economy, new loans in China recorded CNY1690.0bn, well ahead of the CNY885.8bn in the previous month and CNY1250.0bn forecasted.

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

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