Key News and Events
- The U.S. and China agreed to a truce in their trade war last week. U.S. President Donald Trump agreed to an interim trade deal with China, which would suspend the tariff hike on $250 billion of Chinese imports scheduled for 15th October in exchange for additional purchases of agricultural products by China. U.S. and Chinese officials are expected to finalize the interim agreement over the next five weeks, ahead of a scheduled meeting between Presidents Trump and Xi next month.
- The U.S. Federal Reserve (Fed) announced a resumption of purchases of short-dated Treasury Bills, in a bid to ease liquidity shortages which caused disruptions in the overnight repo market in September. Fed Chairman Jay Powell said that this action differed from the crisis-era quantitative easing programme, as it was intended to facilitate short-term lending rather than to stimulate the U.S. economy.
- Sterling rallied following Brexit talks between British Prime Minister Boris Johnson and Irish Taoiseach Leo Varadkar. Both leaders claimed that they can see a “pathway to a deal” on Brexit, culminating in intensive Brexit talks between the UK and the European Union over the weekend. Under UK law, Boris Johnson is required to seek a Brexit extension by 19th October if a deal is not ratified by then.
Week in Markets
- Global equity markets rose over the week, boosted by positive progress made in the ongoing US-China trade negotiations.
- The S&P 500 index rose by 0.7% over the week, underperforming the MSCI World index, which rose by 1.2%. On a year-to-date basis, S&P 500 index outperformed the MSCI World index (20.4% vs 18.2%).
- U.S. Large Cap stocks underperformed Small Cap stocks over the week, as the S&P 500 index rose by 0.7% while the Russell 2000 index rose by 0.8%. On a year-to-date basis, the S&P 500 index outperformed the Russell 2000 index (20.4% vs 13.4%).
- Growth stocks outperformed Value stocks over the week as measured by the MSCI USA Growth and Value index. Growth Stocks rose by 1.0% while Value Stocks rose by 0.3% over the week. On a year-to-date basis, Growth Stocks outperformed Value Stocks (25.1% vs 16.0%).
- The 10-year U.S. treasury yield rose by 24bps to 1.75% and 30-year U.S. treasury yield rose by 20bps to 2.21% over the week.
- The 20-year TIPS yield rose by 17bps to 0.40% and 20-year breakeven inflation rose by 6bps to 1.64% over the week.
- The spreads on the Bank of America Merrill Lynch U.S. Corporate Index fell by 4bps to 122bps and the spreads on the Bloomberg Barclays Long Credit Index fell by 6bps to 166bps over the week.
- The U.S. High Yield bond spread over U.S. treasury yields fell by 28bps to 410bps and the spread of USD denominated EM debt over U.S. treasury yields fell by 18bps to 340bps over the week.
- The S&P GSCI index rose by 2.7% in USD terms over the week.
- The S&P GSCI Energy index rose by 3.4% as the price of WTI crude oil rose by 3.6% to US$55/BBL.
- Industrial Metal prices rose by 1.6% as copper prices rose by 2.9% to US$5,763/MT.
- Agricultural prices rose by 2.2% and gold prices fell by 1.3% to US$1,479/Oz.
- The U.S. dollar depreciated against most major currencies (except the Japanese yen) over the week.
- Sterling appreciated by 3.2% against the U.S. dollar over the week, ending the week at $1.27/£.
- The euro appreciated by 0.5% against the U.S. dollar over the week, ending the week at $1.1/€.
- The Japanese yen depreciated by 1.6% against the U.S. dollar over the week, ending the week at ¥108.59/$.
- The Canadian dollar appreciated by 0.9% against the U.S. dollar over the week, ending the week at C$1.32/$.
Highlighted Last Week Releases
U. of Mich. Consumer Sentiment
Consumer sentiment rose to a three-month high in October, increasing by 2.8 points to 96.0 amidst, easing concerns over the U.S.-China trade conflict. Analysts have been expecting a 1.2-point fall. Expectations for inflation-adjusted income growth rose to the most favourable level in two decades as consumers anticipated larger income gains and lower inflation over the next year.
Industrial Production MoM
Industrial production in the UK fell by 0.6% in the month of August, underperforming expectations of a 0.1% increase. This followed three consecutive months of production increases. Meanwhile, manufacturing output fell by 0.7% amidst a large fall in pharmaceutical and refined petroleum production.
Caixin China PMI Composite
The Caixin China Composite PMI rose to the highest level in five months, rising by 0.3 points to 51.9. The rise is mostly driven by the manufacturing sector, which expanded at the fastest rate in 18 months. The services sector, however, grew at the slowest rate in seven months.
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Factset. Click here for index descriptions.
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