Week in Markets (Week Ending November 3, 2019)

November 4, 2019

Key News and Events

  • As widely expected, the U.S. Federal Reserve (Fed) cut the federal funds rate for the third time this year, cutting it by 25bps to a range of 1.50%-1.75%. The Fed signaled that it has no further plans to cut rates, preferring to wait for clearer economic data instead, but stated that a significant move up in inflation is required before the Fed would consider raising rates.
  • The European Union agreed to grant a three-month extension to the Article 50 deadline, bringing the proposed Brexit date back to 31 January 2020. Meanwhile, the UK Parliament voted to hold a general election on 12 December 2019, in a bid to resolve the current political deadlock.
  • The Asia-Pacific Economic Cooperation (APEC) summit on November 16-17, where Presidents Trump and Xi were intending to meet and finalise "phase 1" of the U.S.-China trade agreement, was cancelled amidst ongoing civil unrest in Chile. However, negotiators from the U.S. and China stated that both sides are on track to conclude an agreement this month.

Week in Markets

Equities

  • Global equity markets rose over the week.
  • The S&P 500 index rose by 1.5% over the week, outperforming the MSCI World index, which rose by 1.3%. On a year-to-date basis, S&P 500 index outperformed the MSCI World index (24.4% vs 22.2%).
  • U.S. Large Cap stocks underperformed Small Cap stocks over the week, as the S&P 500 index rose by 1.5% while the Russell 2000 index rose by 2.0%. On a year-to-date basis, the S&P 500 index outperformed the Russell 2000 index (24.4% vs 19.2%).
  • Growth stocks outperformed Value stocks over the week as measured by the MSCI USA Growth and Value index. Growth Stocks rose by 1.6% while Value Stocks rose by 1.3% over the week. On a year-to-date basis, Growth Stocks outperformed Value Stocks (29.1% vs 19.9%).

Bonds

  • The 10-year U.S. treasury yield fell by 7bps to 1.73% and 30-year U.S. treasury yield fell by 8bps to 2.21% over the week.
  • The 20-year TIPS yield fell by 3bps to 0.35% and 20-year breakeven inflation fell by 4bps to 1.68% over the week.
  • The spreads on the Bank of America Merrill Lynch U.S. Corporate Index rose by 2bps to 116bps and the spreads on the Bloomberg Barclays Long Credit Index rose by 1bps to 160bps over the week.
  • The U.S. High Yield bond spread over U.S. treasury yields rose by 20bps to 409bps and the spread of USD denominated EM debt over U.S. treasury yields fell by 4bps to 331bps over the week.

Commodities

  • The S&P GSCI index rose by 0.2% in USD terms over the week.
  • The S&P GSCI Energy index fell by 0.2% as the price of WTI crude oil fell by 0.8% to US$56/BBL.
  • Industrial Metal prices rose by 0.5% as copper prices fell by 1.2% to US$5,797/MT.
  • Agricultural prices rose by 0.5% and gold prices fell by 0.3% to US$1,509/Oz.

Currencies

  • The U.S. dollar depreciated against most major currencies (except the Canadian dollar) over the week.
  • Sterling appreciated by 0.9% against the U.S. dollar over the week, ending the week at $1.29/£.
  • The euro appreciated by 0.7% against the U.S. dollar over the week, ending the week at $1.12/€.
  • The Japanese yen appreciated by 0.4% against the U.S. dollar over the week, ending the week at ¥108.15/$.
  • The Canadian dollar depreciated by 0.6% against the U.S. dollar over the week, ending the week at C$1.31/$.

Highlighted Last Week Releases

Region

Description

Comment

U.S.

GDP Annualized QoQ

The U.S. economy grew at an annualized rate of 1.9% in the third quarter, beating analysts' forecasts of 1.6% but slowing from the 2.0% growth recorded previously. Increases in consumer expenditure and government spending were the main drivers of growth over the quarter, whilst a fall in net exports and sharp contraction in business investment detracted from growth.

 

U.S.

Change in Nonfarm Payrolls

The U.S. economy added substantially more jobs than expected in October, easily beating market expectations of 85,000 new jobs with an advance of 128,000. Notable job gains were recorded in the financial and food & beverage industries, whilst manufacturing employment fell significantly.

 

Eurozone

GDP SA QoQ

The Eurozone economy grew by 0.2% in Q3, in line with the previous quarter and slightly above market expectations of 0.1%. GDP growth in large Eurozone economies such as France, Italy and Spain remained steady, whilst Germany's GDP growth figures will be available later in the month.

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

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