Week in Markets (Week Ending September 1, 2019)

September 3, 2019

Key News and Events

  • The U.S. implemented a 15% tariff on $112bn worth of Chinese imports on 1 September, expanding the tariffs to previously untaxed consumer goods such as headphones and footwear. In response, the Chinese government levied additional tariffs of between 5 to 10% on a range of U.S. goods, including U.S. crude oil which were previously omitted.
  • Trade tensions have shown signs of de-escalating earlier in the week, as the Chinese Commerce Ministry confirmed that trade talks with the U.S. remained scheduled in September and reiterated that China has no plans to further escalate the dispute. Elsewhere, the U.S. reached an agreement with France to remove a digital tax imposed on U.S. tech companies if an international agreement can be reached. The U.S. also announced an upcoming trade agreement with Japan which covers agriculture, industrial tariffs and digital trade, with the agreement scheduled to be finalized at the upcoming United Nations General Assembly meeting.
  • UK Prime Minister Boris Johnson suspended parliament from next week until October 14, leaving lawmakers with little time to approve legislation against a “no-deal” Brexit or to pass a no-confidence motion against Boris Johnson. The Prime Minister reiterated his belief that a compromise on the Irish backstop issue can be reached with the EU if a no deal outcome remains on the table.
  • Italian Prime Minister Giuseppe Conte is set to return as Prime Minister as the anti-establishment Five Star Movement agreed a draft accord with the center-left Democratic Party to form a coalition government.  The move was welcomed by investors, with the widely watched spread between German and Italian bond yields falling to its lowest levels since the election last year.

Week in Markets

Equities

  • Global equity markets rose over the week amidst less negative than expected developments on the trade front. President Trump and the Chinese Commerce Ministry confirmed that trade talks remain scheduled in September despite the new rounds of tariffs coming into effect over the weekend.
  • The S&P 500 index rose by 2.8% over the week, outperforming the MSCI World index, which rose by 2.1%. On a year-to-date basis, S&P 500 index outperformed the MSCI World index (18.3% vs 15.6%).
  • U.S. Large Cap stocks outperformed Small Cap stocks over the week, as the S&P 500 index rose by 2.8% while the Russell 2000 index rose by 2.5%. On a year-to-date basis, the S&P 500 index outperformed the Russell 2000 index (18.3% vs 11.8%).
  • Growth stocks outperformed Value stocks over the week as measured by the MSCI USA Growth and Value index. Growth Stocks rose by 2.9% while Value Stocks rose by 2.7% over the week. On a year-to-date basis, Growth Stocks outperformed Value Stocks (24.1% vs 13.1%).

Bonds

  • The 10-year U.S. treasury yield fell by 2bps to 1.50% and 30-year U.S. treasury yield fell by 5bps to 1.96% over the week.
  • The 20-year TIPS yield fell by 3bps to 0.16% and 20-year breakeven inflation fell by 1bps to 1.62% over the week.
  • The spreads on the Bank of America Merrill Lynch U.S. Corporate Index was unchanged at 125bps and the spreads on the Bloomberg Barclays Long Credit Index rose by 3bps to 170bps over the week.
  • The U.S. High Yield bond spread over U.S. treasury yields fell by 16bps to 409bps and the spread of USD denominated EM debt over U.S. treasury yields fell by 15bps to 363bps over the week.

Commodities

  • The S&P GSCI index rose by 1.0% in USD terms over the week.
  • The S&P GSCI Energy index rose by 1.4% as the price of WTI crude oil rose by 1.7% to US$55/BBL.
  • Industrial Metal prices rose by 1.0% as copper prices rose by 0.1% to US$5,678/MT.
  • Agricultural prices fell by 0.4% and gold prices rose by 1.6% to US$1,528/Oz.

Currencies

  • The U.S. dollar appreciated against most major currencies (except the Canadian dollar) over the week.
  • Sterling depreciated by 0.8% against the U.S. dollar over the week, ending the week at $1.22/£.
  • The euro depreciated by 0.9% against the U.S. dollar over the week, ending the week at $1.10/€.
  • The Japanese yen depreciated by 0.2% against the U.S. dollar over the week, ending the week at ¥106.15/$.
  • The Canadian dollar remained unchanged against the U.S. dollar over the week, ending the week at C$1.33/$.

Highlighted Last Week Releases

Region

Description

Comment

U.S.

U. of Mich. Sentiment

Consumer sentiment fell by 2.3 points to 89.8 in August, reaching the lowest level in three years. Analysts have expected a small increase. Consumers have adjusted their expectations about the future economic environment downwards, with one in three consumers spontaneously pointing to the U.S.-China trade dispute as a key concern in the survey.

 

UK

GfK Consumer Confidence

Consumer sentiment fell by 3 points to -14 in August, reaching a seven-month low with all five measures of consumer sentiment declining over the month. Growth concerns and Brexit uncertainty continued to weigh on sentiments, as expectations about the general economic situation over the next 12 months down 6 points to -38.

 

China

Manufacturing PMI

The official Chinese Manufacturing PMI fell by 0.2 points to 49.5 in August, recording the fourth consecutive months of contraction in the manufacturing sector amidst growing trade tensions. The Caixin Manufacturing PMI, which focuses on smaller private sector businesses, unexpectedly rebounded into the expansion territory, increasing by 0.5 points to 50.4.

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

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