Week in Markets (Week Ending May 5, 2019)

May 7, 2019

Equities

  • Global equity markets rose over the week over a week which saw a continued revival in global economic data including better than expected employment data in the US. 
  • US-China trade negotiations took a turn for the worse over the weekend following a series of tweets from US President Trump. The administration threatened to impose 25% tariffs on all Chinese imports this coming Friday as a retaliation against China for allegedly trying to go back on language that had already been agreed. Nevertheless, a delegation of Chinese officials, albeit a smaller one than originally planned, will hold talks with the US this week in the hopes of finalising a deal.
  • The S&P 500 rose by 0.2%, marginally underperforming the MSCI World index, which rose by 0.3% over the week. On a year-to-date basis, the S&P 500 index has outperformed the MSCI World index (18.3% vs 16.7%).
  • US Large Cap stocks underperformed Small Cap stocks over the week as the S&P 500 index rose by 0.2% while the Russell 2000 index rose by 1.4%. On a year-to-date basis, the S&P 500 Index has underperformed the Russell 2000 Index (18.3% vs 20.2%). The Growth stocks fell by 0.1% and Value stocks rose by 0.6% 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 (22.2% vs 14.9%).

Bonds 

  • The 10-year US Treasury bond yield rose by 1bp to 2.55% while the 30-year US Treasury yield fell by 1bp to 2.94% in a week in which the US unemployment fell to a 49-year low and the Fed left rates on hold. The 20-year TIPS yield rose by 9bps to 0.84% while the 20-year breakeven inflation fell by 8bps to 1.93%. 
  • Both the spreads on the Bloomberg Barclays Capital Long Credit Index and the Bank of America Merrill Lynch US Corporate Index rose by 1bp over the week to 160bps and 118bps respectively. The US high yield bond spread over US treasury yields fell by 2bps to 374bps. The spread of USD-denominated EM debt over US treasury yields fell by 7bps to 344bps over the week.

Commodities   

  • The S&P GSCI index fell by 1.0% in USD terms over the week. The S&P GSCI Energy index fell by 0.9% as the price of WTI Crude oil fell by 2.1% to US$62/BBL. Industrial metal prices fell by 2.2% as copper prices fell by 3.3% to US$6,180/MT. Agricultural prices fell by 0.9% and gold prices fell by 0.4% to US$1,279/Oz.   

Currencies 

  • The US dollar depreciated against all the major currencies over the week. The US dollar depreciated by 1.4% against sterling, ending the week at $1.31/£. The US dollar slipped by 0.2% against the euro, finishing the week at $1.12/€. The US dollar weakened by 0.3% against the Japanese yen, ending the week at ¥111.25/$. The US dollar depreciated by 0.4% against the Canadian dollar, ending the week at C$1.34/$.   

Economic Releases

  • In the US, a measure of national factory activity, the Institute of Supply Management's (ISM) manufacturing index, fell from 55.3 to 52.8 in April, which is the weakest level since October 2016. The sub-index measuring New Orders fell to 51.7 from 57.4 and the Employment sub-index fell to 52.4 from 57.5. The ISM Non-Manufacturing index, a measure of activity in the services sector, fell by 0.6-points to 55.5, underperforming expectations of an increase to 57.0. On a more positive note, April's non-farm payroll release surpassed analyst forecasts of 190k with 263k new jobs being added over the month and improved from the downwardly revised 189k reading in March. This, alongside a slight fall in the labour participation rate, drove the unemployment rate lower to 3.6% from 3.8% – the lowest level since December 1969. The tighter labour market, however, failed to spur faster wage growth which held firm at 3.2%, against expectations of wage growth edging up to 3.3%. Elsewhere, consumer confidence improved strongly over April with the Conference Board's Consumer Confidence index rising to 129.2, above expectations of 126.8 and above the previous reading of 124.2.
  • Euro Area GDP expanded by 0.4% in Q1 2019, beating expectations of a 0.3% growth and 0.2% growth recorded in the previous quarter. This took year-on-year GDP growth to 1.2% matching the upwardly revised growth recorded in the previous quarter. The Italian economy rebounded, recording quarter on quarter growth of 0.2%, after falling into a technical recession in the second half of 2018. Inflation picked up with headline consumer price inflation accelerating by 0.3% to 1.7% in the year to April, pushing the rate to a six-month high and beating consensus estimates of 1.6%. Core inflation increased by 0.4% to 1.2%. The German inflation rate exceeded the European Central Bank’s target rate with the EU-harmonized Consumer Price Index increasing by 2.1% year-on-year in April. Elsewhere, German retail sales fell 2.1% in the year to March 2019, defying expectation of it increasing by 2.9%.
  • There were no economic releases in Japan due to the “Golden Week” holidays.
  • The Chinese manufacturing sector, based on PMI data, slowed for the second consecutive month. Against expectations of the manufacturing PMI remaining at 50.5, the index slipped to 50.1 in April. The official non-manufacturing index dipped to 54.3 from 54.8 over the month. This resulted in composite PMI decreasing to 53.4 from 54.0 over the same period. The Caixin manufacturing PMI, which focuses on small and mid-sized Chinese business, fell to 50.2 from 50.8 against expectations of it increasing to 50.9 over the same period. Conversely, the Caixin services PMI rose to 54.5 in April from 54.4 due to an increase in new export orders.

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

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