Week in Markets (Week Ending March 10, 2019)

March 11, 2019

Equities 

  • Global equity markets fell over the week amidst weaker than expected economic data out of the US and China. US-China trade talks took a step back last week, as conflicts over enforcement arrangements led to a postponement of the proposed end-March summit between Presidents Trump and Xi. The US also announced plans to end preferential trade treatment for India and Turkey, who are both currently treated as developing countries and therefore qualified for zero-tariff status.
  • The S&P 500 index and the MSCI World index both fell by 2.1% over the week. On a year-to-date basis, the S&P 500 index has outperformed the MSCI World index (9.9% vs 9.4%).
  • US Small Cap stocks underperformed Large Cap stocks over the week as the Russell 2000 index fell by 4.2% while the S&P 500 index fell by 2.1%. However, on a year-to-date basis, the S&P 500 Index has underperformed the Russell 2000 Index (9.9% vs. 13.1%).
  • Growth stocks and Value stocks fell by 2.3% and 2.0% respectively over the week, as measured by MSCI USA Growth and Value Indices. On a year-to-date basis, Growth stocks have outperformed Value stocks (11.5% vs 8.9%).

Bonds 

  • 10-year US treasury yield fell by 12bps to 2.63% and the 30-year US treasury yield fell by 11bps to 3.01% over a week which saw a sharp slowdown in US non-farm jobs growth. The 20-year TIPS yield fell by 8bps to 0.90% and the 20-year breakeven inflation rate fell by 6bps to 1.93%.
  • The spread on the Bloomberg Barclays Capital Long Credit Index rose by 4bps to 176bps and the spread on Bank of America Merrill Lynch US Corporate Index rose by 1bp to 129bps. The US high yield bond spread over US treasury yields rose by 32bps to 418bps. The spread of USD denominated EM debt over US treasury yields rose by 20bps to 361bps over the week.

Commodities   

  • The S&P GSCI index was unchanged in USD terms over the week. The S&P GSCI Energy index rose by 0.7% as the price of WTI Crude oil rose by 0.5% to US$56/BBL. Industrial metal prices fell by 2.0% as copper prices declined by 2.6% to US$6,399/MT. Agricultural prices fell by 2.4% and gold prices fell by 1.2% to US$1,297/Oz.   

Currencies 

  • The US dollar appreciated against major currencies (except for the yen) over the week. The US dollar appreciated by 1.7% against sterling, ending the week at $1.30/£. The US dollar appreciated by 1.3% against the euro, finishing the week at $1.12/€. The US dollar depreciated by 0.7% against the Japanese yen, ending the week at ¥111.14/$. The US dollar appreciated by 1.5% against the Canadian dollar, ending the week at C$1.34/$.   

Economic Releases

  • Last week's jobs report underscored slowing economic momentum in the US, as a fairly paltry 20k new jobs were added over February compared to the previous reading of 311k and expectations of 180k. Alongside the unemployment rate falling from 4.0% to 3.8%, and year-on-year growth in average hourly earnings accelerating to 3.4% from 3.1%, the jobs report reflected limited slack in the economy. The latter marked the fastest pace of growth since April 2009. The trade deficit rose to 10-year high of $59.8bn in December, well ahead of the deficit of $57.9b expected by analysts and $50.3bn recorded in November. Whereas the activity in the manufacturing sector has been on a downward trend, the Institute of Supply Management's (ISM) Non-Manufacturing index, a measure of activity in the services sector, rose by 3-points to 59.7 in February and outperformed expectations of a more modest 0.7-point increase.
  • In the Euro Area, the final reading for fourth quarter GDP growth was marginally revised lower to 1.1% year on year from 1.2%. Retail sales rebounded by 1.3% in January following December's upwardly revised 1.4% fall, which took the year-on-year growth to 2.2% from the 0.3% growth recorded previously. In Germany, factory orders sharply fell by 2.6% in January from the upwardly revised 0.9% growth recorded in December. This was the sharpest fall since June 2018 and was mainly driven by falling foreign demand (-3.6%), particularly from outside of the EU (-4.2%), though domestic orders also fell (-1.2%).
  • In Japan, the final reading for fourth quarter GDP growth was upwardly revised to an annualized 1.9% from 1.4% and above consensus estimates of 1.7% growth. This was supported by increased business spending which rose to 2.7% from the initial 2.4% previously recorded. Labour cash earnings disappointed with year-on-year growth declining to 1.2% in January from the downwardly revised 1.5% growth in the previous month. Once adjusted for inflation, real wages rose by 1.1% in the year to January, unchanged from the downwardly revised 1.1% growth recorded in the previous month. The current account surplus widened from ¥452.8bn to ¥600.4bn in January and were significantly above forecasts of ¥161.0bn. Elsewhere, the Nikkei Services PMI increased to 52.3 in February from 51.6 whilst the overall composite PMI edged lower to 50.7 from 50.9 over the same period, due to the slowdown in manufacturing sector.
  • In China, exports sharply contracted by 20.7% in the year to February, worse than analyst forecasts of a 5.0% decline and significantly below 9.1% increase seen in the previous month. Over the same period, imports shrank by 5.2%, worse than the previous decline of 1.5% and below the estimated 0.6% decrease. Consequently, the trade surplus narrowed sharply to US$4.12bn from US$39.16bn and came in short of analyst estimates of a US$26.20bn surplus. Elsewhere, consumer price inflation slowed from 1.7% to 1.5% in the year to February, meeting analyst forecasts. Amid a backdrop of greater efforts by the central government to stimulate the economy, new loans in China failed to meet expectations and fell to ¥885.8bn, after surging to a record high in January with ¥3,230bn loans.

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

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