Week in Markets (Week Ending May 26, 2019)

May 28, 2019

Equities

  • Ongoing U.S.-China trade tensions continued to weigh on markets last week, despite the announcement of a 90-day delay to the full implementation of a U.S. export ban on Huawei.  Prior to the announcement of a delay, Google had confirmed it would cut off Huawei from its Android operating system, whilst global semiconductor manufacturers also announced their intention to stop supplying components to Huawei.
  • The S&P 500 index fell by 1.1%, marginally underperforming the MSCI World index, which fell by 0.9% over the week. On a year-to-date basis, the S&P 500 index has outperformed the MSCI World index (13.7% vs 12.6%).
  • U.S. Large Cap stocks marginally outperformed Small Cap stocks over the week as the S&P 500 index fell by 1.1% while the Russell 2000 index fell by 1.4%. On a year-to-date basis, the S&P 500 Index has outperformed the Russell 2000 Index (13.7% vs 12.9%). Growth stocks fell by 1.6% and Value stocks fell by 0.7% 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 (16.7% vs 11.1%). 

Bonds 

  • The 10-year and the 30-year U.S. treasury yields both fell by 11bps each to 2.30% and 2.73% respectively. The 20-year TIPS yield fell by 3bps to 0.74% and the 20-year breakeven inflation rate fell by 6bps to 1.82%.
  • The spreads on the Bloomberg Barclays Capital Long Credit Index rose by 5bps to 172bps and the Bank of America Merrill Lynch U.S. Corporate Index rose by 3bps to 127bps. The U.S. high yield bond spread over U.S. treasury yields rose by 9bps to 416bps and the spread of USD denominated EM debt over U.S. treasury yields rose by 5bps to 369bps over the week.

Commodities   

  • The S&P GSCI index fell by 3.5% in USD terms over the week. The S&P GSCI Energy index fell by 6.0% as the price of WTI Crude oil fell by 6.6% to US$59/BBL. Industrial metal prices fell by 1.2% as copper prices fell by 1.8% to US$5,919/MT. Agricultural prices went up by 4.0% and gold prices rose by 0.1% to US$1,283/Oz.   

Currencies 

  • The U.S. dollar had a mixed performance against major currencies over the week. The U.S. dollar appreciated by 0.3% against sterling, ending the week at $1.27/£. The U.S. dollar depreciated by 0.4% against the euro, finishing the week at $1.12/€. The U.S. dollar depreciated by 0.6% against the Japanese yen, ending the week at ¥109.35/$. The U.S. dollar remained unchanged against the Canadian dollar, ending the week at C$1.35/$.   

Economic Releases

  • In the U.S., the provisional May release of the Manufacturing Purchasing Managers' Index (PMI) disappointed with the index falling to 50.6. Not only did it miss the forecast of remaining at 52.6 but also fell to its lowest level since September 2009. Slowing growth was not confined to just the manufacturing sector as the Services PMI also fell to 50.9 from 53.0, against the expectation of it increasing to 53.5. Orders for durable goods fell by 2.1% in April from a downwardly revised 1.7% increase in the previous month and dipped more than analyst forecasts of a 2.0% contraction. Orders for non-defense capital goods (excluding aircraft), which is viewed as a proxy for business investment, contracted by 0.9% – worse than expectations of a 0.3% decline. April’s release was sharply revised lower to 0.3% from 1.4%. Elsewhere, existing home sales failed to meet forecasts of a 2.7% increase and continued in a fall albeit by a lesser extent, falling by only 0.4% in April following the 4.9% decrease in the prior month.
  • Euro Area Markit Manufacturing PMI continued to disappoint with the May Preliminary reading falling to 47.7 from 47.9. The German manufacturing sector also disappointed with the PMI falling to 44.3 from 44.4. Both the readings were below analyst expectation for a marginal improvement to 48.1 and 44.8 respectively. Albeit Services PMIs remaining in the expansion territory, both the Euro Area and German services PMIs slowed to 52.5 and 55 from 52.8 and 55.7 respectively. Euro Area consumer confidence improved to -6.5 in May from -7.3 in April. In Germany, the April IFO Business Climate index dropped to 97.9 from 99.2, hitting the lowest level since 2014.
  • In Japan, headline consumer price inflation accelerated to 0.9% for the year to April, in line with expectations and up from 0.5% recorded previously. Core consumer price inflation, which excludes more volatile food but not energy prices, met consensus estimates and edger higher to 0.9%. The rebound in the Japanese manufacturing sector was short-lived as the latest Nikkei manufacturing PMI release returned to contractionary territory – falling from 50.2 to 49.6. Elsewhere, Japan posted a trade surplus of ¥60.4bn in April, significantly lower than analyst forecasts of a ¥232.7bn surplus and the ¥527.8bn surplus in the previous month. Exports declined by 2.4% in the year to April, similar to the previous month and worse than the forecasted decline of 1.6%. Imports rose by 6.4% over the same period, above than the forecasted 4.5% increase and significantly better than the previous month’s 1.2% increase.
  • Industrial profits for Chinese companies contracted by their quickest pace since December 2015 as profits fell by 3.7% year-on-year in April, raising concerns about a slowing Chinese economy. The reading was equally stark when compared to the 13.9% increase seen in March.

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

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