Key News and Events
- In response to newly announced tariffs by the U.S. government, China officially halted purchases of U.S. agricultural products. This was followed by a new rule from the Trump administration preventing governmental purchases from a range of Chinese tech companies considered as security threats, including Huawei.
- The People's Bank of China (PBoC) allowed the renminbi to fall below the symbolic Rmb7/USD level, causing the yuan to reach its lowest level in nearly a decade. This prompted the U.S. Treasury Department to officially label China as a “currency manipulator”, fulfilling a pledge dating from President Trump's 2016 election campaign.
- Italian Prime Minister Giuseppe Conte recalled parliament from its summer break for a vote of no-confidence at the request of Matteo Salvini, the interior minister and the leader of the far-right League party. This follows disagreements over a series of issues within the coalition government which has brought it to the verge of collapse.
Week in Markets
- Global equity markets fell over the week, as global growth concerns and further escalations of the US-China trade dispute weighed over equity markets.
- The S&P 500 index fell by 0.4% over the week, outperforming the MSCI World index, which fell by 0.6%. On a year-to-date basis, S&P 500 index outperformed the MSCI World index (17.8% vs 15.3%).
- U.S. Large Cap stocks outperformed Small Cap stocks over the week, as the S&P 500 index fell by 0.4% while the Russell 2000 index fell by 1.3%. On a year-to-date basis, the S&P 500 index outperformed the Russell 2000 index (17.8% vs 13.1%).
- Growth stocks outperformed Value stocks over the week as measured by the MSCI USA Growth and Value index. Growth Stocks was unchanged, whilst Value Stocks fell by 0.8%. On a year-to-date basis, Growth Stocks outperformed Value Stocks (23.1% vs 13.4%).
- The 10-year U.S. treasury yield fell by 12bps to 1.73% and 30-year U.S. treasury yield fell by 14bps to 2.25% over the week.
- The 20-year TIPS yield fell by 13bps to 0.30% and 20-year breakeven inflation was unchanged at 1.73% over the week.
- The spreads on the Bank of America Merrill Lynch U.S. Corporate Index rose by 7bps to 126bps and the spreads on the Bloomberg Barclays Long Credit Index rose by 7bps to 167bps over the week.
- The U.S. High Yield bond spread over U.S. treasury yields rose by 12bps to 431bps and the spread of USD denominated EM debt over U.S. treasury yields rose by 2bps to 347bps over the week.
- The S&P GSCI index fell by 1.7% in USD terms over the week.
- The S&P GSCI Energy index fell by 3.6% as the price of WTI crude oil fell by 2.1% to US$55/BBL.
- Industrial Metal prices rose by 0.7% as copper prices fell by 0.4% to US$5,744/MT.
- Agricultural prices rose by 1.3% and gold prices rose by 3.9% to US$1,498/Oz.
- The U.S. dollar depreciated against most major currencies (except sterling) over the week.
- Sterling depreciated by 0.3% against the U.S. dollar over the week, ending the week at $1.21/£.
- The euro appreciated by 0.9% against the U.S. dollar over the week, ending the week at $1.12/€.
- The Japanese yen appreciated by 0.9% against the U.S. dollar over the week, ending the week at ¥105.66/$.
- The Canadian dollar remained unchanged against the U.S. dollar over the week, ending the week at C$1.32/$.
Highlighted Last Week Releases
Markit U.S. Services PMI
The Markit U.S. Services PMI rose by 0.8 points to 53.0 in July, recording the fastest rate of expansion since April. New orders grew at the fastest rate since March, but a slowdown in future expectations suggest that near-term downside risks may have risen.
The UK economy contracted for the first quarter since 2012, as GDP declined by 0.2% in the second quarter of 2019 amidst ongoing Brexit uncertainty. Manufacturing outputs contracted at the quickest quarterly rate since 2009, reflecting an uncertain economic outlook and the recent closures of a number of car manufacturing plants. Services output grew by 0.1%, the slowest rate of growth in three years as retail trades remained sluggish.
Sentix Investor Confidence
Investor confidence in the Euro Area fell to its lowest level in nearly five years amidst increased concern over an all-out US-China trade war. The index fell to -13.7 in August, down 7.9 points from the previous reading. Germany's exports-reliant economy was particularly badly hit, as industrial production there fell by 1.5% in June.
China recorded a larger than expected trade surplus of US$45 billion in July 2019, as exports unexpectedly rose by 3.3% in the year to July despite analyst forecasts of a 1.0% decline. Despite a 6.5% fall in US exports, rising exports to the EU and Asian economies boosted the trade balance.
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Factset. Click here for index descriptions.
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