Week in Markets (Week Ending April 21, 2019)

April 23, 2019

Equities

  • Progress continues to be made between the U.S. and China in their talks on resolving the ongoing trade dispute. However, new trade tensions emerged, this time between the U.S. and the EU, as part of a long-running dispute over EU subsidies for Airbus and U.S. subsidies for Boeing. The U.S. and EU have both announced a list of potential retaliatory tariffs. This comes amidst repeated threats from the U.S. to impose additional tariffs on EU car exports. 
  • Elsewhere the U.S. has re-imposed sanctions on Iranian oil, removing waivers from U.S. sanctions that had been granted to some of Iran's largest customers. The U.S. is now demanding that countries halt the importation of any oil from Iran. Brent crude initially jumped above $74/bbl as markets factored in the impact of reduced Iranian supply.
  • The S&P 500 index fell by 0.1% over the week, underperforming the MSCI World index, which rose by 0.1% over the week. On a year-to-date basis, the S&P 500 index has outperformed the MSCI World index (16.6% vs 15.6%).
  • US Large Cap stocks outperformed Small Cap stocks over the week as the S&P 500 index fell by 0.1% while the Russell 2000 index fell by 1.2%. On a year-to-date basis, both the S&P 500 Index and the Russell 2000 Index returned 16.6%. Growth stocks and Value stocks both fell by 0.1% respectively over the week as measured by the MSCI USA Growth and Value Indices. However, on a year-to-date basis, Growth stocks have outperformed Value stocks (19.8% vs 13.9%).

Bonds 

  • The 10-year U.S. treasury bond yield remained unchanged at 2.56% while the 30-year U.S. treasury yield fell by 1bp to 2.96%. The 20-year TIPS yield and the 20-year breakeven inflation rate remained unchanged at 0.81% and 1.97% respectively. 
  • The spreads on the Bloomberg Barclays Capital Long Credit Index remained unchanged at 159bps and the Bank of America Merrill Lynch U.S. Corporate Index fell by 1bp to 117bps. The U.S. high yield bond spread over U.S. treasury yields rose by 5bps to 373bps. The spread of USD denominated EM debt over U.S. treasury yields fell by 1bp to 344bps over the week.

Commodities   

  • The S&P GSCI index fell by 0.3% in USD terms over the week. The S&P GSCI Energy index remained unchanged as the price of WTI Crude oil rose by 0.2% to US$64/BBL. Industrial metal prices fell by 0.7% as copper prices fell by 0.6% to US$6,448/MT. Agricultural prices fell by 1.5% and gold prices fell by 1.4% to US$1,276/Oz.   

Currencies 

  • The U.S. dollar depreciated against major currencies (except JPY) over the week. The U.S. dollar depreciated by 0.7% against sterling, ending the week at $1.30/£. The U.S. dollar depreciated by 0.6% against the euro, finishing the week at $1.12/€. The U.S. dollar appreciated by 0.1% against the Japanese yen, ending the week at ¥111.89/$. The U.S. dollar depreciated by 0.3% against the Canadian dollar, ending the week at C$1.34/$.   

Economic Releases

  • In the US, the provisional April release of the Manufacturing Purchasing Managers' Index (PMI) remained at 52.4, underperforming expectations of a modest increase to 52.8. The Services PMI disappointed with the index falling from 55.3 to 52.9, a much larger than expected decrease versus expectations of a 0.3-point decrease. On a more positive note, retail sales increased by 1.6% in the month of March, well ahead of the 1.0% increase expected and the 0.2% contraction seen in the previous month, posting the largest monthly increase since September 2017. The trade deficit in February narrowed to $49.4bn from $51.1bn previously, beating expectations of a widening deficit of $53.4bn. The fall in trade deficit was predominantly driven by a reduction in imports from China and a surge in aircraft exports. Elsewhere, the Philadelphia Fed Business Outlook dropped to 8.5 in April, down from 13.7.
  • Euro Area Markit Manufacturing PMI March Preliminary reading rose to 47.8 from 47.5 but remains in contraction territory. The German manufacturing sector also remained deep in contraction territory despite the PMI rising to 44.5 from 44.1 as a steep decline in new export orders, the second-fastest in 10 years, pulled down new business orders. Both readings were below analyst expectations for an improvement to 48.0 and 45.0 respectively. In Europe, the ZEW Indicator for Economic Sentiment rebounded to 4.5 in April from -2.5 recorded previously. The German Indicator of Economic Sentiment also improved, increasing to 3.1 from -3.6 and against expectations of 0.5.
  • In Japan, headline consumer price inflation accelerated to 0.5% for the year to March, in line with expectations and up from 0.2% previously. Core consumer price inflation, which excludes more volatile food but not energy prices, edged up to 0.8%, beating forecasts of a 0.7% reading. Japan’s manufacturing sector contracted for a third consecutive month in April (as reflected in the latest Nikkei manufacturing PMI data), the index remained in contractionary territory with the overall manufacturing index edging up from 49.2 to 49.5. Tertiary Industry index fell by 0.6% in February, worse than the forecasted decrease of 0.2% and reversing the 0.6% increase in January. Elsewhere, Japan posted a trade surplus of ¥528.5bn in March, higher than analyst forecasts of a ¥363.2bn surplus and the ¥334.9bn surplus in the previous month. Exports declined by 2.4% in the year to March, worse than the 1.2% decline in the previous month but better than the forecasted decline of 2.6%. Imports rebounded by 1.1% over the same period, below than the forecasted 2.8% increase but significantly better than the previous month’s decline of 6.6%.           
  • The Chinese economy grew at a faster than expected rate in Q1 2019 as trade tensions with the U.S. de-escalated and the government’s series of expansionary policies came into effect.  The economy grew at an annualized rate of 6.4%, ahead of the forecasted growth of 6.3%. Industrial production grew by 8.5% in the year to March, significantly ahead of the 5.9% increase expected. Fixed asset investment grew by 6.3% (year-to-date) from a year earlier, meeting expectations. Retail sales grew by 8.7% over the period, ahead of the forecasted growth of 8.4%.

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

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