Week in Markets (Week Ending April 7, 2019)

April 8, 2019

Equities 

  • Global equity markets rose over the week, benefiting from progress in U.S.-China trade talks and encouraging U.S. and Chinese manufacturing data, which boosted investor sentiments.
  • U.S. President Donald Trump said that a U.S.-China trade deal could be finalized within four weeks. The President suggested that whilst there remained some way to go, a "lot of the most difficult" points have been tackled. The President’s economic adviser Larry Kudlow was optimistic about the trade deal and mentioned that top officials would be holding talks via teleconference this week. He further added that great progress has been made on issues like intellectual property theft and forced transfer of technology.
  • The S&P 500 index rose by 2.1% and the MSCI World index rose by 2.0% over the week. On a year-to-date basis, the S&P 500 index has outperformed the MSCI World index (16.0% vs 15.0%). 
  • U.S. Large Cap stocks underperformed their Small Cap peers over the week as the S&P 500 index rose by 2.1% while the Russell 2000 index rose by 2.8%. On a year-to-date basis, the S&P 500 Index has underperformed the Russell 2000 Index (16.0% vs. 17.8%). Growth stocks and Value stocks rose by 2.4% and 1.7% 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 (19.2% vs 13.4%).

Bonds 

  • The 10-year U.S. bond yield rose by 8bps to 2.50% and the 30-year U.S. treasury yield rose by 9bps to 2.91%. The 20-year TIPS yield rose by 7bps to 0.79% and the 20-year breakeven inflation rate rose by 2bps to 1.93%. 
  • The spreads on the Bloomberg Barclays Capital Long Credit Index fell by 5bps to 167bps and the Bank of America Merrill Lynch US Corporate Index fell by 2bps to 123bps. The U.S. high yield bond spread over U.S. treasury yields fell by 13bps to 386bps, partly due to higher crude oil prices. The spread of USD denominated EM debt over U.S. treasury yields fell by 12bps to 345bps over the week.

Commodities   

The S&P GSCI index rose by 3.0% over the week. The S&P GSCI Energy index rose by 4.1% as the price of WTI Crude oil rose by 4.9% to US$63/BBL, following a fresh escalation of conflict in oil rich Libya. Industrial metal prices fell by 1.1% as copper prices fell by 1.0% to US$6,419/MT. Agricultural prices rose by 1.6% and gold prices fell by 0.5% to US$1,288/Oz.   

Currencies 

  • The U.S. dollar appreciated against most major currencies (except the Euro) over the week. The U.S. dollar appreciated by 0.2% against sterling, ending the week at $1.30/£. The U.S. dollar remained unchanged against the euro, finishing the week at $1.12/€. The U.S. dollar appreciated by 1.0% against the Japanese yen, ending the week at ¥111.75/$. The U.S. dollar appreciated by 0.1% against the Canadian dollar, ending the week at C$1.34/$.   

Economic Releases

  • U.S. employment data rebounded strongly from what was a fairly dismal February non-farm payroll reading. In March, non-farm payrolls surpassed analyst forecasts of 177k with 196k new jobs added over the month; well ahead of upwardly revised 33k reading in February. The unemployment rate in March held steady at 3.8% as expected. However, year-on-year growth in average hourly earnings slowed to 3.2% against expectations of wage growth holding steady at 3.4%. A measure of national factory activity, the Institute of Supply Management's (ISM) manufacturing index, rebounded from the weakest level in two years by rising to 55.3 in March from 54.2, ahead of the expectations of the index rising to 54.5. The sub-index measuring New Orders rose to 57.4 from 55.5 while the Employment sub-index rose to 57.5 from 52.3. On a more negative note, the advance reading of US retail sales for February disappointed with sales falling by 0.2%, against expectation of it increasing by 0.2% and below upwardly revised 0.7% recorded previously.
  • In Europe, headline consumer price inflation slowed by 0.1% to 1.4% in the year to March, against consensus estimates of it remaining unchanged. However, core inflation eased to 0.8% from 1.0%, hitting its lowest level in two years. Retail sales rose by 2.8% in the year to February, beating analyst forecast of growing by 2.3% and well ahead of the 2.2% increase recorded previously. In Germany, factory orders fell at their fastest pace in two years. Factory orders fell by 4.2% in February from the upwardly revised 2.1% contraction recorded in January and significantly below 0.3% growth expected. Over the same period, Industrial production rose by 0.7%, beating estimates of 0.5%.
  • In Japan, labour cash earnings disappointed with earnings declining by 0.8% on a year-on-year basis in February. This followed a significant downward revision from January's reading where the 1.2% increase was revised to a 0.6% decrease. Once adjusted for inflation, wages fell by 1.1% from the revised 0.7% decline recorded in the previous month. Both readings were significantly below the 0.9% and 0.8% increase forecasted in a month in which labour ministry adjusted the sample group used to compile the data. The current account surplus widened from ¥600.4bn to ¥2676.8bn in February and was above forecasts of ¥2633.5bn. Elsewhere, the Nikkei Services PMI decreased to 52.0 in March from 52.3. The overall composite PMI edged lower to 50.4 from 50.7 over the same period due to the deterioration in the manufacturing sector.
  • In China, economic releases were generally positive. The Caixin services PMI reached a fourteen-month high in March, rising to 54.4 from 51.1 due to an increase in new export orders. The composite PMI also increased to 52.9 from 50.7 over the same period.

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

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