Week in Markets (Week Ending October 6, 2019)

October 7, 2019

Key News and Events

  • The U.S. announced tariffs on $7.5 billion worth of EU imports, in a measure authorized by the World Trade Organization (WTO) after the WTO ruled that European governments have failed to abide by WTO rules in providing state subsidies to aircraft maker Airbus. The tariffs, ranging from 10% on aircrafts to 25% on some agricultural and other items, will be implemented on 18 October.
  • In the UK, Prime Minister (PM) Boris Johnson presented a proposed new Brexit deal to the EU. The proposal aims to mitigate the Northern Irish "backstop" issue through the creation of two borders; a customs frontier between Northern Ireland and the Republic of Ireland and a new regulatory frontier between Northern Ireland and the rest of the UK. However, reports suggested that the EU is demanding significant changes to the PM's proposal.
  • Global economic data continued to be weak. The JP Morgan Global Manufacturing PMI remained in the contraction territory for the fifth consecutive month, whilst the UK Composite PMI pointed to a contracting UK economy, bringing the UK to the brink of a recession. However, a strong U.S. jobs report, in which unemployment rate fell to a 50-year low, provided the market with some respite.

Week in Markets

Equities

  • Global equity markets fell over the week.
  • The S&P 500 index fell by 0.3% over the week, outperforming the MSCI World index, which fell by 1.0%. On a year-to-date basis, S&P 500 index outperformed the MSCI World index (19.6% vs 16.8%).
  • U.S. Large Cap stocks outperformed Small Cap stocks over the week, as the S&P 500 index fell by 0.3% while the Russell 2000 index fell by 1.3%. On a year-to-date basis, the S&P 500 index outperformed the Russell 2000 index (19.6% vs 12.5%).
  • Growth stocks outperformed Value stocks over the week as measured by the MSCI USA Growth and Value index. Growth Stocks rose by 0.4% while Value Stocks fell by 0.9% over the week. On a year-to-date basis, Growth Stocks outperformed Value Stocks (23.8% vs 15.7%).

Bonds

  • The 10-year U.S. treasury yield fell by 16bps to 1.51% and 30-year U.S. treasury yield fell by 11bps to 2.02% over the week.
  • The 20-year TIPS yield fell by 12bps to 0.23% and 20-year breakeven inflation fell by 2bps to 1.58% over the week.
  • The spreads on the Bank of America Merrill Lynch U.S. Corporate Index rose by 5bps to 126bps and the spreads on the Bloomberg Barclays Long Credit Index rose by 5bps to 172bps over the week.
  • The U.S. High Yield bond spread over U.S. treasury yields rose by 39bps to 438bps and the spread of USD denominated EM debt over U.S. treasury yields rose by 1bps to 358bps over the week.

Commodities

  • The S&P GSCI index fell by 2.4% in USD terms over the week.
  • The S&P GSCI Energy index fell by 4.3% as the price of WTI crude oil fell by 5.5% to US$53/BBL.
  • Industrial Metal prices fell by 0.5% as copper prices fell by 2.0% to US$5,599/MT.
  • Agricultural prices rose by 2.0% and gold prices rose by 0.6% to US$1,499/Oz.

Currencies

  • The U.S. dollar had a mixed performance against major currencies over the week.
  • Sterling depreciated by 0.1% against the U.S. dollar over the week, ending the week at $1.23/£.
  • The euro appreciated by 0.3% against the U.S. dollar over the week, ending the week at $1.1/€.
  • The Japanese yen appreciated by 1.2% against the U.S. dollar over the week, ending the week at ¥106.89/$.
  • The Canadian dollar depreciated by 0.6% against the U.S. dollar over the week, ending the week at C$1.33/$.

Highlighted Last Week Releases

Region

Description

Comment

U.S.

ISM Manufacturing

The ISM Manufacturing PMI dropped by 1.3 points to 47.8 in September, pointing to the steepest contraction in the manufacturing sector in 10 years. Analysts have been expecting a neutral reading of 50.0 instead of a second consecutive month of contraction.

 

U.S.

Unemployment rate

The U.S. unemployment rate has fallen to a 50-year low, unexpectedly dropping by 0.2% to 3.5% in September, in a respite to the gloomy economic releases in recent weeks. The economy adds 136,000 jobs over the month, below forecasts of 145,000. However, the previous month's reading was also revised upwards from 130,000 to 168,000.

 

UK

Markit/CIPS UK Composite PMI

The UK Composite PMI fell into contractionary territory in September, falling by 0.9 points to 49.3, the lowest reading in three years. The dominant services sector also contracted for the first time in six months, joining the manufacturing and construction sectors in the contractionary territory.

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

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