Key News and Events
- The ongoing U.S.-China trade dispute show some signs of a breakthrough last week, as the U.S. and China agreed to restart stalled trade talks. Officials from both countries will be holding deputy level meetings in the upcoming weeks, culminating in face-to-face talks between U.S. and Chinese ministers in Washington in October.
- In the UK, the House of Commons passed a bill requiring the Prime Minister (PM) to request an extension of Article 50 from the European Union if a deal is not agreed and ratified before the current scheduled Brexit date of 31 October 2019. In response, PM Boris Johnson expelled 21 MPs who voted in favor of the bill from his ruling Conservative party. Parliament also voted to block the PM’s call for a snap election, after opposition parties agreed to delay any elections until after 31 October.
- In Italy, government bond yields reached a record low after a new coalition government between the anti-establishment Five Star Movement and the center-left Democratic Party was formally agreed. Elsewhere, Hong Kong Chief Executive Carrie Lam formally withdrew the controversial extradition bill which had sparked 3 months of widespread protests. Meanwhile, the People’s Bank of China cut its Reserve Requirement Ratio by between 50bps and 100bps to provide further stimulus for the economy.
Week in Markets
- Global equity markets rose over the week, boosted by positive developments in the US-China trade negotiations.
- The S&P 500 index rose by 1.8% over the week, underperforming the MSCI World index, which rose by 1.9%. On a year-to-date basis, S&P 500 index outperformed the MSCI World index (20.5% vs 17.9%).
- U.S. Large Cap stocks outperformed Small Cap stocks over the week, as the S&P 500 index rose by 1.8% while the Russell 2000 index rose by 0.7%. On a year-to-date basis, the S&P 500 index outperformed the Russell 2000 index (20.5% vs 12.6%).
- Growth stocks underperformed Value stocks over the week as measured by the MSCI USA Growth and Value index. Growth Stocks rose by 1.5% while Value Stocks rose by 2.1% over the week. On a year-to-date basis, Growth Stocks outperformed Value Stocks (26.0% vs 15.5%).
- The 10-year U.S. treasury yield rose by 5bps to 1.55% and 30-year U.S. treasury yield rose by 6bps to 2.02% over the week.
- The 20-year TIPS yield rose by 5bps to 0.21% and 20-year breakeven inflation was unchanged at 1.62% over the week.
- The spreads on the Bank of America Merrill Lynch U.S. Corporate Index rose by 1bps to 126bps and the spreads on the Bloomberg Barclays Long Credit Index fell by 2bps to 168bps over the week.
- The U.S. High Yield bond spread over U.S. treasury yields fell by 4bps to 405bps and the spread of USD denominated EM debt over U.S. treasury yields fell by 14bps to 348bps over the week.
- The S&P GSCI index rose by 1.9% 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 2.6% to US$57/BBL.
- Industrial Metal prices rose by 2.4% as copper prices rose by 1.9% to US$5,788/MT.
- Agricultural prices fell by 1.5% and gold prices fell by 0.3% to US$1,524/Oz.
- The U.S. dollar depreciated against most major currencies (except the Japanese yen) over the week.
- Sterling appreciated by 1.1% 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 $1.10/€.
- The Japanese yen depreciated by 0.6% against the U.S. dollar over the week, ending the week at ¥106.78/$.
- The Canadian dollar appreciated by 0.8% against the U.S. dollar over the week, ending the week at C$1.32/$.
Highlighted Last Week Releases
Change in Nonfarm Payrolls
The U.S. economy adds 130,000 jobs in August, disappointing market expectations of an 158,000 increase. There were notable job gains in the financials and healthcare sectors, whilst the hiring of 25,000 temporary workers to prepare for the 2020 Census has boosted employment in the federal government. Meanwhile, the retail and mining sectors saw net job losses over the month.
Markit/CIPS UK Composite PMI
The UK Composite PMI fell by 0.5 points to 50.2, below market expectations of a 0.2-point decrease. Weakness in the manufacturing sector continues amidst ongoing Brexit uncertainty, as the Manufacturing PMI fell by 0.6 points to 47.4, the steepest monthly contraction in seven years.
Retail Sales MoM
Eurozone's retail sales declined by 0.6% in July, partially reversing the previous month's 1.2% growth and matching market expectations. This was the largest monthly fall in retail trade this year, as non-food sales declined sharply.
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Factset. Click here for index descriptions.
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