Week in Markets (Week Ending October 27, 2019)

October 29, 2019

Key News and Events

  • In the UK, MPs voted to agree "in principle" to Prime Minister Boris Johnson’s Brexit deal by passing the second reading of the bill, but the government's “timetable motion”, which would be needed to allow the UK to exit the EU before the current scheduled Brexit date of 31 October, was voted down as MPs wanted more time to scrutinize the bill. 
  • In Canada, Justin Trudeau is set to continue as Prime Minister after his Liberal party won the most seats in the election last week. However, Trudeau's Liberals will need to lead a minority government after falling 14 seats short of a majority.  
  • Following a call with Chinese officials, U.S. trade representative Robert Lighthizer suggested that parts of the "phase one" U.S.-China trade agreement are "closed to being finalized".
  • In Mario Draghi's last meeting as the European Central Bank's (ECB) president, the ECB kept interest rates unchanged at -0.5% and reiterated its guidance that interest rates will not rise until inflation returns to target.   

Week in Markets

Equities

  • Global equity markets rose over the week.
  • The S&P 500 index rose by 1.2% over the week, underperforming the MSCI World index, which rose by 1.3%. On a year-to-date basis, S&P 500 index outperformed the MSCI World index (22.5% vs 20.6%).
  • U.S. Large Cap stocks underperformed Small Cap stocks over the week, as the S&P 500 index rose by 1.2% while the Russell 2000 index rose by 1.5%. On a year-to-date basis, the S&P 500 index outperformed the Russell 2000 index (22.5% vs 16.9%).
  • Growth stocks returned in line with Value stocks over the week as measured by the MSCI USA Growth and Value index, as both Growth Stocks and Value Stocks rose by 1.3%. On a year-to-date basis, Growth Stocks outperformed Value Stocks (27.0% vs 18.4%).

Bonds

  • The 10-year U.S. treasury yield rose by 5bps to 1.80% and 30-year U.S. treasury yield rose by 5bps to 2.29% over the week.
  • The 20-year TIPS yield fell by 1bps to 0.38% and 20-year breakeven inflation rose by 5bps to 1.72% over the week.
  • The spreads on the Bank of America Merrill Lynch U.S. Corporate Index fell by 4bps to 114bps and the spreads on the Bloomberg Barclays Long Credit Index fell by 4bps to 159bps over the week.
  • The U.S. High Yield bond spread over U.S. treasury yields fell by 13bps to 389bps and the spread of USD denominated EM debt over U.S. treasury yields fell by 5bps to 334bps over the week.

Commodities

  • The S&P GSCI index rose by 2.4% in USD terms over the week.
  • The S&P GSCI Energy index rose by 4.0% as the price of WTI crude oil rose by 5.4% to US$57/BBL as new data shows a fall in U.S. crude oil inventories.
  • Industrial Metal prices rose by 1.4% as copper prices rose by 2.0% to US$5,868/MT.
  • Agricultural prices fell by 1.2% and gold prices rose by 1.6% to US$1,513/Oz.

Currencies

  • The U.S. dollar appreciated against most major currencies (except the Canadian dollar) over the week.
  • Sterling depreciated by 0.5% against the U.S. dollar over the week, ending the week at $1.28/£.
  • The euro depreciated by 0.4% against the U.S. dollar over the week, ending the week at $1.11/€.
  • The Japanese yen depreciated by 0.1% against the U.S. dollar over the week, ending the week at ¥108.58/$.
  • The Canadian dollar appreciated by 0.5% against the U.S. dollar over the week, ending the week at C$1.31/$.

Highlighted Last Week Releases

Region

Description

Comment

U.S.

Markit U.S. Manufacturing PMI

The U.S. Manufacturing PMI rose by 0.4 points to hit a 6-month high of 51.5, defying analysts' expectations of a 0.2-point fall. October's data pointed to an increase in new export sales for the first time in four months, whilst business confidence also rose to its highest levels since June.

 

UK

CBI Business Optimism

Business optimism in the UK fell by 12 points to a three-year low of -44, despite forecasts of a 2-point rise. Optimism about export prospects experienced its worst decline since 2001, whilst quarterly headcount also fell at the fastest levels in nine years.

 

Eurozone

Markit Eurozone Manufacturing PMI

The Eurozone Manufacturing PMI remained unchanged at a seven-year low of 45.7, undershooting forecasts of a 0.3-point rise. The manufacturing sector contracted for the ninth consecutive month, as new orders and exports continued to shrink.

 

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

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