Markets & Key Events | 12th April 2019
Mixed data, mixed performance for markets as investors wait for company results season
Mixed news this week left equity markets broadly flat, with the MSCI World index down 0.1%, as investors wait for the unofficial start to earnings season, with JP Morgan and Wells Fargo releasing earnings before the US market open today. Globally, poor export data out of Germany, pointing towards a continuation of the slowdown, was mixed with an improved picture in China. In addition, another Brexit deadline passed, as the European Union agreed to extend the UK’s membership until the 31st October, which was not lost on commentators as being Halloween.
Over the week up to 12pm London time on Friday, the US S&P 500 index fell 0.2%, whilst the technology focused Nasdaq Composite index rose 0.1%. The EuroStoxx 600 fell 0.3%, the UK’s FTSE All Share rose 0.2%, Japanese Topix fell 1.3%, Australian S&P/ASX 200 rose by 1.1% and the MSCI Emerging Markets index rose by 0.2%.
Government bond yields, which move inversely to price, rose a little over the week, with the 10-year US Treasury now yielding 2.52%, UK Gilts 1.19% and German Bunds 0.03%. Gold finished the week up 0.1%, trading at $1,297 an ounce. Whilst oil prices continued to climb, Brent crude is currently trading at $71.68 a barrel and US WTI (West Texas Intermediate) at $64.52.
ECB concludes that growth risks remain to the downside
The week started with poor export data being released by Germany, showing that exports fell a further 1.3% over February, whilst imports dropped 1.6%, both recording sharper declines than forecast. This was followed by news that President Trump of the US was threatening to impose new tariffs on $11bn worth of EU products. This was in response to a World Trade Organisation report that concluded the EU is illegally subsidising Airbus, the European aerospace and defence group. Mario Draghi, president of the European Central Bank (ECB) struck a downbeat tone on Wednesday, warning that a number of uncertainties were continuing to weigh on the Eurozone economy. These included global growth, trade wars and continued Brexit uncertainty, leaving the ECB to conclude that risks to growth remain tilted to the downside. The pledge to leave interest rates on hold until at least the end of 2019 was reconfirmed.
Despite Brexit, UK growth exceeds expectations
However, perhaps unexpectedly, data out of the UK showed that the economy grew at 0.3% in the three months to February, faster than forecast. This was in direct contrast to private surveys suggesting that the economy was heading for its worst performance since 2012. The consumer, government spending and Information Technology helped to offset weakness from other areas of the economy. Whilst sterling remained broadly flat on the news of the EU Brexit extension, trading just beneath $1.31, the more domestically focused FTSE 250 index rose 1%, whilst the large cap FTSE 100 index was flat.
US interest rates “could shift in either direction”
Minutes from the last US Federal Reserve (Fed) meeting were released on Wednesday with several participants saying interest rates “could shift in either direction based on incoming data and other developments”. However, the majority of voting Fed officials expected rates to remain on hold for the rest of the year, whilst the economic outlook was unclear. Last Friday’s non-farm payroll job data was mixed, with more jobs being created than expected in March, but wage growth slowed down. This week, the US consumer price index (CPI) jumped up 1.9% year on year for March, up from 1.5% the previous month. Much of this increase was due to the oil price, and core CPI, i.e. excluding food and energy, coming in at 2%, down from 2.1% in February, likely reinforcing the Fed’s ‘patient’ approach to further rate hikes. Fed funds futures are currently pricing in no prospect of a rate rise for the rest of 2019, and a 55% chance of a rate cut in January 2020.
Recovery in Chinese exports
Chinese exports recovered by 14.2% year on year in March in US dollar terms, versus a 20.7% fall in February, and much higher than forecast. However, imports weakened further, falling 7.6%, versus expectations of a small increase. Over the week domestic ‘A’ shares fell 1.8% as measured by the Shanghai Composite Index, however, year to date, the index is up a massive 29.3%. Although no trade deal has been announced with the US, both sides agreed to set up enforcement offices to monitor the implementation of any such agreement.
Energy sector drives the Australian index up
Energy was the best performing sector this week in Australia, as the rise in commodity prices buoyed energy stocks including Woodside Petroleum and Santos which rose 4.9% and 5.4% respectively over the period. The sector has benefitted from the price of oil which has continued its strong run, extending a 5-month high.
In economic news, the Reserve Bank of Australia released its bi-annual financial stability review. The report warned that debt and faster than expected house price declines had created “greater-than-usual uncertainty”. This follows the central bank’s more cautious rhetoric on the economy after leaving interest rates on hold once again last week.
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