Week in Markets (Week Ending July 14, 2019)

July 15, 2019

Key News and Events

  • In his testimony to Congress, Federal Reserve (Fed) Chairman Jerome Powell highlighted the risks to U.S. economic outlook, hinting at a probable interest rate cut by the Fed at its next meeting later this month. Expectations of easing monetary policy helped U.S. equities to reach new highs, as the S&P 500 index reached a record high of 3,000.
  • U.S.-China trade negotiations appear to have ran into difficulties over the week. U.S. President Donald Trump suggested on Twitter that Beijing is reneging on its promises at the G20 meeting last month to purchase more American agricultural products.
  • The French Senate approved a new “Digital tax” which will impose a 3% tax on the French revenue of digital companies. In response, the Trump administration ordered an investigation into the planned tax, which could potentially result in retaliatory tariffs being imposed on French or European imports.
  • Tensions in the Middle East escalated further as Iranian gunboats attempted to impede a British oil tanker in the Strait of Hormuz. 

Week in Markets

Equities

  • Global equity markets rose over the week.
  • The S&P 500 index rose by 0.8% over the week, outperforming the MSCI World index, which rose by 0.4%. The S&P 500 Index and the Dow Jones Industrial Average rose to a record high of 3,000 and 27,000 respectively. On a year-to-date basis, S&P 500 index outperformed the MSCI World index (21.5% vs 19.3%).
  • U.S. Large Cap stocks outperformed Small Cap stocks over the week, as the S&P 500 index rose by 0.8% while the Russell 2000 index fell by 0.3%. On a year-to-date basis, the S&P 500 index outperformed the Russell 2000 index (21.5% vs 17.3%).
  • Growth stocks outperformed Value stocks over the week as measured by the MSCI USA Growth and Value index. Growth Stocks rose by 1.3% while Value Stocks rose by 0.3% over the week. On a year-to-date basis, Growth Stocks outperformed Value Stocks (26.7% vs 17.1%).

Bonds

  • The 10-year U.S. treasury yield rose by 6bps to 2.11% and 30-year U.S. treasury yield rose by 9bps to 2.63% over the week, supported by better than expected U.S. inflation data.
  • The 20-year TIPS yield was unchanged at 0.58% and 20-year breakeven inflation rose by 8bps to 1.84% over the week.
  • The spreads on the Bank of America Merrill Lynch U.S. Corporate Index fell by 1bps to 118bps and the spreads on the Bloomberg Barclays Long Credit Index fell by 1bps to 158bps over the week.
  • The U.S. High Yield bond spread over U.S. treasury yields rose by 4bps to 402bps and the spread of USD denominated EM debt over U.S. treasury yields rose by 1bps to 341bps over the week.

Commodities

  • The S&P GSCI index rose by 3.2% in USD terms over the week.
  • The S&P GSCI Energy index rose by 4.1% as the price of Brent Crude oil rose by 3.9% to US$67/BBL, supported by rising tensions in the Middle East and a drop in U.S. Crude oil inventories.
  • Industrial Metal prices rose by 1.7% as copper prices rose by 1.6% to US$5,950/MT.
  • Agricultural prices rose by 1.9% and gold prices rose by 1.4% to US$1,408/Oz.

Currencies

  • The U.S. dollar depreciated against all major currencies over the week.
  • Sterling appreciated by 0.4% against the U.S. dollar over the week, ending the week at ¥1.26/$.
  • The euro appreciated by 0.3% against the U.S. dollar over the week, ending the week at ¥1.13/$.
  • The Japanese yen appreciated by 0.4% against the U.S. dollar over the week, ending the week at ¥108.02/$.
  • The Canadian dollar appreciated by 0.5% against the U.S. dollar over the week, ending the week at ¥1.30/$.

Highlighted Last Week Releases

Region

Description

Comment

U.S.

CPI MoM

Consumer prices in the U.S. rose by 0.1% in the month of June, in line with the previous month's inflation rate but above expectations of a 0.0% inflation reading. Core inflation, which excludes volatile food and energy components, reached 0.3% in June, above the 0.1% inflation rate recorded previously.

UK

Industrial Production MoM

Industrial production rose by 1.4% in the month of May, rebounding from the 2.9% drop recorded previously. This meant that industrial production in the year to May is now up by 0.9%, benefiting from a rebound in the production of basic materials and energy products.

China

GDP YoY

China's economy grew by 6.2% year-on-year in Q2 2019, the slowest growth rate since the Chinese government calculated the current series of GDP data in 1992. This came amidst ongoing trade tensions between China and the U.S. which dampened demands for Chinese exports.

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

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