Week in Markets (Week Ending March 17, 2019)

March 18, 2019

Equities 

  • Global equity markets rose over the week as market sentiment improved and investors looked through recent weak economic data. This was also supported by expectations that global monetary and fiscal policy would remain accommodative.
  • Despite claims that positive progress has been made in U.S.-China trade negotiations, news reports indicated that a meeting between the Presidents of China and the U.S. would be pushed back from March to June. Elsewhere, following a meeting with Leo Varadkar, the Irish Prime Minister, U.S. President Donald Trump warned that his administration could inflict “pretty severe” economic pain on the EU if the block doesn’t negotiate a trade deal with the U.S.
  • In the U.S., the Republican-led Senate voted to block President Trump’s declaration of national emergency, which secure funds for a U.S.-Mexico border wall. However, President Trump issued the first veto of his administration to block this measure. The veto will hold unless a two-third majority in both houses vote to overturn it.
  • The S&P 500 index and the MSCI World index rose by 2.9% over the week. On a year-to-date basis, the S&P 500 index has outperformed the MSCI World index (13.1% vs 12.5%). 
  • U.S. Large Cap stocks outperformed Small Cap stocks over the week as the S&P 500 index rose by 2.9% while the Russell 2000 index rose by 2.1%. However, on a year-to-date basis, the Russell 2000 Index has outperformed the S&P 500 Index (15.5% vs. 13.1%). Growth stocks and Value stocks rose by 3.3% and 2.6% 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 (15.2% vs 11.7%).

Bonds 

  • 10-year US treasury yield fell by 4bps to 2.59%. However, 30-year US treasury yield rose by 1bp to 3.02% over a week. The 20-year TIPS yield fell by 5bps to 0.85% while the 20-year breakeven inflation rate rose by 5bps to 1.98%.
  • The spread on the Bloomberg Barclays Capital Long Credit Index fell by 2bps to 174bps and the spread on Bank of America Merrill Lynch US Corporate Index fell by 3bps to 126bps. The US high yield bond spread over US treasury yields fell by 23bps to 395bps. The spread of USD denominated EM debt over US treasury yields fell by 10bps to 351bps over the week.

Commodities  

  • The S&P GSCI index rose by 2.3% in USD terms over the week. The S&P GSCI Energy index rose by 2.5% as the price of WTI Crude oil rose by 4.4% to US$59/BBL. Industrial metal prices rose by 0.9% as copper prices increased by 0.2% to US$6,410/MT. Agricultural prices rose by 2.7% and gold prices rose by 0.5% to US$1,304/Oz.   

Currencies 

  • The U.S. dollar depreciated against major currencies (except for the yen) over the week. The U.S. dollar depreciated by 2.0% against sterling, ending the week at $1.33/£. The U.S. dollar depreciated by 0.8% against the euro, finishing the week at $1.13/€. The U.S. dollar appreciated by 0.4% against the Japanese yen, ending the week at ¥111.58/$. The U.S. dollar depreciated by 0.8% against the Canadian dollar, ending the week at C$1.33/$.   

Economic Releases

  • In the US, the Consumer Price Index (CPI) rose by 0.2% in the month of February, in line with expectations. However, on an annual basis consumer price inflation was at the lowest level since late 2016 at 1.5%. Core inflation, which excludes volatile food and energy components, came in at 2.1% over the same annual period. Analysts had forecasted unchanged inflation readings of 1.6% and 2.2% respectively. Real average weekly earnings rose by 1.6% in the year to February, following on from the 1.9% growth recorded in the year to January. Whilst a 0.2% rebound in US retails sales was recorded in January despite consensus estimates of a flat reading, December's reading was revised lower from an initial estimate of -1.2% to -1.6%, the worst reading in over 9 years. Industrial production edged up by 0.1% in February, up from the revised contraction of 0.4% recorded in the previous month, but below expectations for a 0.4% growth.
  • Eurozone industrial production increased by 1.4% in January, reversing the 0.9% decline recorded in December and beating analyst forecasts of a 1.0% increase. In Germany, industrial production fell sharply by 0.8% against expectation for a 0.5% increase. However, December’s reading was revised higher to a 0.8% growth from an initial estimate of 0.4% decline. The German trade surplus decreased to €14.5 billing in January from €17.2 billion in the previous year as imports (+5.0% YoY) grew faster than exports (+1.7% YoY).
  • The Bank of Japan (BoJ), as expected, left its ultra-low interest rate policies unchanged in its latest monetary policy meeting. The BoJ suggested it is likely that Japan's economy will contract again in Q1 2019, for the third time in five quarters. Core machinery orders fell at the fastest rate in over a year, falling by 5.4% in the month of January, worse than the consensus estimates of a 1.5% fall. However, the Tertiary Industry index rebounded by 0.4% in January against a forecasted decrease of 0.3%. Japan posted a trade surplus of ¥339.0bn in February, higher than analyst forecasts of a ¥305.1bn surplus and rebounding from January’s deficit of ¥1,415.6bn. Exports declined by 1.2% in the year to February, worse than the forecasted 0.6% decline but better than the previous month’s decline of 8.4%. Imports fell by 6.7% over the same period, slightly worse than the estimated 6.4% decrease but significantly worse than the previous month’s decline of 0.8%.
  • In China, industrial production grew by 5.3% in the year to date (compared to the same period last year). This is slower than the estimated growth of 5.6% and the 6.2% increase recorded previously; indicating the slowest pace of growth in seventeen years. Fixed asset investment grew by 6.1%, in line with consensus estimates over the same period. Jobless rate rose by 0.4% to 5.3% in February. Elsewhere, Chinese central bank officials pledged not to de-value their currency in order to boost exports, helping to resolve a key issue in the US-China trade negotiations.

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

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