Key News and Events
- The Chinese Commerce Ministry announced that the U.S. and China have agreed to remove some of the recently implemented tariffs, although the extent of the deal is still unclear after President Trump declined to confirm the announcement.
- Hopes of a trade breakthrough and improving investor sentiment on the global economy helped drive U.S. equities to record highs. Improving risk appetite was also reflected in government bond yields, as the 10-year U.S. treasury yield reached a three-month high and the 10-year French yield reached positive territory for the first time since July.
- The Spanish election on Sunday, the fourth election in four years, again failed to break the political impasse. Incumbent Prime Minister Pedro Sanchez’s Socialists party won the most seats but fell well short of a majority as it won three fewer seats than in the previous election.
- The Bank of England’s Monetary Policy Committee (MPC) voted to leave interest rates unchanged at 0.75% last week with two of the nine MPC members voting for a rate cut in the first split decision since June 2018. The Bank also cut its growth forecasts, reflecting a weaker global backdrop and the projected economic effects of the revised Brexit deal.
Week in Markets
- Global equity markets rose over the week.
- The S&P 500 index rose by 0.9% over the week, outperforming the MSCI World index, which rose by 0.8%. On a year-to-date basis, S&P 500 index outperformed the MSCI World index (25.5% vs 23.2%).
- U.S. Large Cap stocks outperformed Small Cap stocks over the week, as the S&P 500 index rose by 0.9% while the Russell 2000 index rose by 0.6%. On a year-to-date basis, the S&P 500 index outperformed the Russell 2000 index (25.5% vs 20.0%).
- Growth stocks underperformed Value stocks over the week as measured by the MSCI USA Growth and Value index. Growth Stocks rose by 0.6% while Value Stocks rose by 1.2% over the week. On a year-to-date basis, Growth Stocks outperformed Value Stocks (29.9% vs 21.4%).
- The 10-year U.S. treasury yield rose by 20bps to 1.93% and 30-year U.S. treasury yield rose by 20bps to 2.41% over the week, the highest levels in three months amidst growing optimism regarding the US-China trade talks.
- The 20-year TIPS yield rose by 9bps to 0.44% and 20-year breakeven inflation rose by 15bps to 1.83% over the week.
- The spreads on the Bank of America Merrill Lynch U.S. Corporate Index fell by 5bps to 111bps and the spreads on the Bloomberg Barclays Long Credit Index fell by 6bps to 154bps over the week.
- The U.S. High Yield bond spread over U.S. treasury yields fell by 9bps to 400bps and the spread of USD denominated EM debt over U.S. treasury yields fell by 10bps to 321bps over the week.
- The S&P GSCI index rose by 0.4% in USD terms over the week.
- The S&P GSCI Energy index rose by 1.2% as the price of WTI crude oil rose by 1.9% to US$57/BBL.
- Industrial Metal prices rose by 0.2% as copper prices rose by 2.7% to US$5,952/MT.
- Agricultural prices fell by 0.9% and gold prices fell by 3.0% to US$1,464/Oz.
- The U.S. dollar appreciated against all major currencies over the week.
- Sterling depreciated by 1.2% against the U.S. dollar over the week, ending the week at $1.28/£.
- The euro depreciated by 1.3% against the U.S. dollar over the week, ending the week at $1.1/€.
- The Japanese yen depreciated by 0.9% against the U.S. dollar over the week, ending the week at ¥109.15/$.
- The Canadian dollar depreciated by 0.5% against the U.S. dollar over the week, ending the week at C$1.32/$.
Highlighted Last Week Releases
U. of Mich. Sentiment
Consumer sentiment inched up in November, increasing by 0.2 points to 95.7 to record the highest reading in four months. However, it underperformed market expectations of 95.9. A more positive outlook by consumers on the state of the economy was offset by a less favourable outlook on their personal finances.
Bank of England Bank Rate
The Bank of England’s Monetary Policy Committee (MPC) voted to leave interest rates unchanged at 0.75% last week. However, two of the nine MPC members surprised financial markets by voting for a rate cut, suggesting that the weakness of the economy required an immediate reduction.
China's trade surplus widened to US$42.8 billion in October, beating expectations of a US$40.1 billion surplus. This was the largest trade surplus since July, as imports declined at a faster rate than exports.
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Factset. Click here for index descriptions.
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