Week in Markets (Week Ending March 31, 2019)

April 1, 2019

Equities 

  • Global equity markets rose over the week as signs of progress in the U.S.-China trade talks counteracted continuing fears over a global growth slowdown.
  • U.S. officials held constructive meetings with their Chinese counterpart in Beijing last week, aiming to resolve remaining issues, such as discrepancies between the English and Chinese language versions of the agreement, ahead of a visit by Chinese officials this week. However, the U.S. is seeking to negotiate better terms, including improved protection of U.S. intellectual property and expanded market access for American companies, as well as agreeing on enforcement mechanisms for the new trade deal.
  • The S&P 500 index rose by 1.2% and the MSCI World index rose by 0.8% over the week. On a year-to-date basis, the S&P 500 index has outperformed the MSCI World index (13.6% vs 12.6%). 
  • U.S. Large Cap stocks underperformed their Small Cap peers over the week as the S&P 500 index rose by 1.2% while the Russell 2000 index rose by 2.3%. On a year-to-date basis, the S&P 500 Index has underperformed the Russell 2000 Index (13.6% vs. 14.6%). Growth stocks and Value stocks rose by 1.3% and 1.2% respectively over the week as measured by the MSCI USA Growth and Value indices. On a year-to-date basis, Growth stocks have outperformed Value stocks (16.4% vs 11.5%).

Bonds 

  • The 10-year U.S. bond yield fell by 4bps to 2.42% and the 30-year U.S. treasury yield fell by 6bps to 2.82%. The U.S. 10-year treasury yields fell to a low of 2.35% over the week, below the mid-point of the Fed funds target rate band. The 20-year TIPS yield fell by 1bp to 0.72% and the 20-year breakeven inflation rate fell by 5bps to 1.91%. 
  • The spreads on the Bloomberg Barclays Capital Long Credit Index fell by 1bp to 172bps and the Bank of America Merrill Lynch US Corporate Index remained unchanged at 125bps. The U.S. high yield bond spread over U.S. treasury yields fell by 4bps to 399bps. The spread of USD denominated EM debt over U.S. treasury yields fell by 1bp to 356bps over the week.

Commodities   

  • The S&P GSCI index remained unchanged over the week. The S&P GSCI Energy index rose by 1.1% as the price of WTI Crude oil rose by 1.9% to US$60/BBL. Industrial metal prices rose by 1.7% as copper prices rose by 1.7% to US$6,485/MT. Agricultural prices fell by 2.4% and gold prices fell by 1.2% to US$1,295/Oz.   

Currencies 

  • The U.S. dollar appreciated against most major currencies (except the Canadian dollar) over the week. The U.S. dollar appreciated by 1.4% against sterling, ending the week at $1.30/£. The U.S. dollar appreciated by 0.5% against the euro, finishing the week at $1.12/€. The U.S. dollar appreciated by 0.8% against the Japanese yen, ending the week at ¥110.69/$. The U.S. dollar depreciated by 0.3% against the Canadian dollar, ending the week at C$1.34/$.   

Economic Releases

  • U.S. economic growth slowed more than initially thought in the final part of 2018 as the GDP growth for the fourth quarter was revised lower to an annualized rate of 2.2% from 2.6%, missing expectations of 2.3% growth. The economic slowdown has translated to lower U.S. consumer sentiment, as indicated by the Conference Board's Consumer Confidence index which fell to 124.1 from 131.4 in March, significantly below analyst expectations of a slight increase to 132.5. The U.S. Federal Reserve's (Fed) preferred measure of consumer price inflation, the core Personal Consumption Expenditure price index, stood at 1.8% for the year to January 2019, down from the upwardly revised 2.0% growth recorded in December 2019 and below the forecasted rate of 1.9%. Elsewhere, the U.S. trade deficit narrowed to $51.1bn in January from $59.9bn, against an estimated deficit of $57.0bn
  • In Europe, year-on-year M3 money supply growth rose to 4.3% in February versus market expectations of 3.9% and 3.8% in January. In Germany, the inflation rate slowed and remained below the European Central Bank’s target level as the EU harmonized consumer price inflation slowed to 1.4% from 1.7% over the year to March against 1.6% expected by the analysts. On a positive note, the German unemployment rate fell to 4.9% in March from 5.0%, its lowest level since German reunification in 1990. Retail sales in Germany rose by 0.9% in February, slowing from downwardly revised 2.8% growth recorded previously but significantly ahead of expectations of a 1.0% decline. Elsewhere, the German IFO business climate index came in at 99.6 in March, ahead of 98.7 in February and exceeding analyst expectation of 98.5.
  • In Japan, the Bank of Japan’s Q1 2019 Tankan survey revealed negative sentiment in both manufacturing and non-manufacturing sectors. The Tankan large manufacturer’s index fell to 12 from 19 and the non-manufacturing index fell to 21 from 24. Both the readings came in below expectations of 13 and 22, respectively. The final reading of the Nikkei manufacturing Purchasing Managers Index (PMI) was revised higher to 49.2 in March from a preliminary reading of 48.9 but nonetheless remains in contractionary territory. Based on preliminary data, Japanese industrial production met consensus estimates and rebounded by 1.4% in February, following a contraction of 3.4% in the previous month. Retail sales also rebounded by 0.2% in February from an upwardly revised 1.8% contraction in January but missed expectations of 1.0% increase. Japan’s labour market strengthened as the jobless rate for February fell to a nine-month low of 2.3%, against forecasts of it remaining at 2.5%. The job-to-applicant ratio, however, remained unchanged at 1.63.
  • The Chinese manufacturing sector, based on PMI data, returned to expansionary territory following three consecutive months of contraction. The official Chinese manufacturing PMI for March rose to 50.5 from 49.2 against expectations of a smaller increase to 49.6. The Caixin manufacturing PMI, which focuses on small and mid- sized Chinese business, also outperformed expectations and rose to 50.8 from 49.9 over the same period. The official non-manufacturing index inched higher to 54.8 from 54.3over the month.

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

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