Week in Markets (Week Ending April 28, 2019)

April 29, 2019

Equities

  • Global equity markets rose over the week, supported by better than expected corporate earnings reports. Microsoft became the third U.S. company to top $1 trillion in market capitalization following better than expected sales and earnings, particularly for its expanding cloud services suite. 
  • The S&P 500 index rose by 1.2% outperforming the MSCI World index, which rose by 0.7% over the week. On a year-to-date basis, the S&P 500 index has outperformed the MSCI World index (18.0% vs 16.4%).
  • U.S. Large Cap stocks underperformed Small Cap stocks over the week as the S&P 500 index rose by 1.2% while the Russell 2000 index rose by 1.7%. On a year-to-date basis, the S&P 500 Index has marginally underperformed the Russell 2000 Index (18.0% vs 18.5%). Growth stocks and Value stocks rose by 2.1% and 0.3% 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 (22.3% vs 14.2%).

Bonds 

  • The 10-year U.S. treasury yield fell by 3bps to 2.53% and the 30-year U.S. treasury yield fell by 1bp to 2.95%. The 20-year TIPS yield fell by 6bps to 0.75% and the 20-year breakeven inflation rose by 4bps to 2.01%. 
  • The spreads on the Bloomberg Barclays Capital Long Credit Index and the Bank of America Merrill Lynch U.S. Corporate Index remained unchanged at 159bps and 117bps respectively. The U.S. high yield bond spread over U.S. treasury yields rose by 2bps to 375bps. The spread of USD denominated EM debt over U.S. treasury yields rose by 8bps to 351bps over the week.

Commodities   

  • The S&P GSCI index fell by 1.2% in USD terms over the week. The S&P GSCI Energy index fell by 0.5% as the price of WTI Crude oil fell by 1.1% to US$63/BBL. Industrial metal prices fell by 1.1% as copper prices fell by 0.9% to US$6,393/MT. Agricultural prices fell by 1.9% and gold prices rose by 0.7% to US$1,284/Oz.   

Currencies 

  • The U.S. dollar appreciated against major currencies (except JPY) over the week. The U.S. dollar appreciated by 0.6% against sterling, ending the week at $1.29/£. The U.S. dollar appreciated by 0.7% against the euro, finishing the week at $1.12/€. The U.S. dollar depreciated by 0.3% against the Japanese yen, ending the week at ¥111.56/$. The U.S. dollar appreciated by 0.7% against the Canadian dollar, ending the week at C$1.35/$.   

Economic Releases

  • U.S. economic growth unexpectedly accelerated significantly by a quarter-on-quarter annualized rate of 3.2% in the Q1 2019, well ahead of the previous reading of 2.2% and expectations for a growth of 2.3%. However, underlying personal consumption growth disappointed and slowed to 1.2% from 2.5% over the same period. Growth over the first quarter was predominantly driven by a build-up in inventories and a boost to net trade. The Fed's preferred measure of inflation, the core Personal Consumption Expenditure (PCE) index, missed expectations of a move down to 1.4% from 1.8% and slowed to 1.3% – further from the Fed's 2% inflation target. On a more positive note, orders for durable goods rebounded by 2.7% in March, significantly ahead of the 0.8% growth expected by the analysts after contracting by 1.1% in the previous month. Orders for non-defense capital goods (excluding aircraft), which is viewed as a proxy for business investment, exceeded expectations of a 0.2% increase in March and rose 1.3%.
  • Euro area consumer confidence fell to -7.9 in April from -7.2 against expectation for a modest improvement to -7. In Germany, the April IFO Business Climate index dropped to 99.2 from an upwardly revised 99.7 in March and below expectations of it improving to 99.9.
  • The Bank of Japan (BoJ) kept its monetary policy unchanged and suggested that interest rates could remain at ultra-low levels at least for another year. Furthermore, the BoJ cut both economic growth and inflation forecasts for the fiscal year starting April 2020. Based on preliminary data, industrial production contracted by 4.6% year-on-year (the steepest decline since 2015), due to slowing demand for exports of automobiles and manufacturing equipment. On a monthly basis, industrial production fell by 0.9% in March against expectations of it remaining flat. Retail sales rose by 0.2% in March, down from an upwardly revised 0.4% in February but above expectations of sales remaining flat. Japan’s jobless rate rose to 2.5% in March, more than the expected increase to 2.4% from 2.3%. However, the job-to-applicant ratio remained unchanged at 1.63.
  • In China, industrial profits rebounded in March thereby ending four consecutive months of slower profit growth. Industrial profits grew by 13.9% year-on-year in March, which partially eases concerns about slowing momentum in the Chinese economy.

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

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