Week in Markets (Week Ending June 23, 2019)

June 24, 2019

Key News and Events

  • Leading central banks indicated increasing likelihood of a loosening in monetary policy in the upcoming months. The U.S. Federal Reserve (Fed) signaled possible rate cuts this year, with eight out of seventeen officials expecting at least one rate cut in 2019.  Meanwhile, European Central Bank’s (ECB) officials indicated the possibility of a fresh round of quantitative easing.
  • Positive progress was reported in the ongoing U.S.-China trade negotiations over the week. U.S. and Chinese officials confirmed that a meeting between Presidents Trump and Xi will take place at the G20 summit scheduled in Japan later this month. Elsewhere, Mexico became the first country to ratify the U.S.-Mexico-Canada Agreement (USMCA), which is designed to succeed the North American Free Trade Agreement (NAFTA).
  • Tensions in the Middle East between Iran and the U.S. escalated over the week. The Iranian military shot down a U.S. unmanned aircraft, which President Trump reacted by briefly authorizing an attack on Iranian targets before reversing the decision shortly before the attack was launched. 

Week in Markets

Equities

  • Global equity markets rose over the week supported by expectations for further monetary easing by major central banks and positive progress made in U.S.-China trade negotiations.
  • The S&P 500 index rose by 2.2% over the week, in line with the MSCI World index, which rose by 2.2%. On a year-to-date basis, S&P 500 index outperformed the MSCI World index (18.9% vs 17.3%).
  • U.S. Large Cap stocks outperformed Small Cap stocks over the week, as the S&P 500 index rose by 2.2% while the Russell 2000 index rose by 1.8%. On a year-to-date basis, the S&P 500 index outperformed the Russell 2000 index (18.9% vs 15.6%).
  • Growth stocks outperformed Value stocks over the week as measured by the MSCI USA Growth and Value index. Growth Stocks rose by 2.7% while Value Stocks rose by 1.7% over the week. On a year-to-date basis, Growth Stocks outperformed Value Stocks (23.3% vs 15.0%).

Bonds

  • The 10-year U.S. treasury yield fell by 3bps to 2.06% and 30-year U.S. treasury yield was unchanged at 2.59% over the week.
  • The 20-year TIPS yield fell by 8bps to 0.59% and 20-year breakeven inflation rose by 1bps to 1.72% over the week.
  • The spreads on the Bank of America Merrill Lynch U.S. Corporate Index fell by 7bps to 125bps and the spreads on the Bloomberg Barclays Long Credit Index fell by 11bps to 164bps over the week.
  • The U.S. High Yield bond spread over U.S. treasury yields fell by 28bps to 395bps and the spread of USD denominated EM debt over U.S. treasury yields fell by 18bps to 347bps over the week.

Commodities

  • The S&P GSCI index rose by 3.5% in USD terms over the week.
  • The S&P GSCI Energy index rose by 6.1% as the price of WTI crude oil rose by 9.4% to US$57/BBL. as tensions escalated in Middle East between Iran and the US.
  • Industrial Metal prices rose by 1.4% as copper prices rose by 2.3% to US$5,941/MT.
  • Agricultural prices fell by 1.6% and gold prices rose by 3.4% to US$1,397/Oz.

Currencies

  • The U.S. dollar depreciated against all major currencies over the week.
  • Sterling appreciated by 0.7% against the U.S. dollar over the week, ending the week at $1.27/£.
  • The euro appreciated by 0.9% against the U.S. dollar over the week, ending the week at $1.13/€.
  • The Japanese yen appreciated by 0.7% against the U.S. dollar over the week, ending the week at ¥107.7/$.
  • The Canadian dollar appreciated by 1.1% against the U.S. dollar over the week, ending the week at C$1.32/$.

Highlighted Last Week Releases

Region

Description

Comment

U.S.

FOMC Rate Decision (Upper Bound)

The U.S. Federal Reserve (Fed) kept rates on hold at 2.25%-2.50% at its meeting last week. However, the Fed shifted towards a more dovish stance, and indicated the likelihood of possible rate cuts in the coming months, with eight out of seventeen officials expecting at least one rate cut in 2019.

UK

Bank of England Bank Rate

The Bank of England (BoE) kept its benchmark interest rate on hold at 0.75% at its meeting last week. Whilst the BoE downgraded its economic outlook for the UK, the Bank did not join the Fed and the ECB in signalling possible monetary easing in 2019 as it retained its previous forward guidance that “limited rate hikes are likely to be required”.

Eurozone

Consumer Confidence

Consumer confidence in the Eurozone unexpectedly fell by 0.7 points to -7.2 in June. Whilst it remained above the long-term average of -10.7, it provided another sign of possible headwinds for the European economy.

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

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