Markets finished this week on a stronger note, after Chinese private factory data showed a surprise three-month high reading, distracting investors from reports yesterday that Chinese officials doubted the US and China could reach a long-term trade pact. The Caixin PMI (Purchasing Manufacturing Index), which focuses more on smaller and private firms as opposed to large state-owned enterprises, showed the fastest expansion in manufacturing in two and half years.
Investors’ main focus was also turned to the Federal Reserve (Fed), which as expected cut interest rates midweek. The benchmark interest rate was cut by 25bps, with the Chairman, Jerome Powell, warning of an uncertain economic outlook. Weaker economic data earlier on Wednesday confirmed this, with US GDP growth easing to 1.9% in the third quarter, as business investment declined. That said, Powell’s comments also raised the odds of a pause in rate cuts in future, after indicating that the Fed would monitor the potential for any trade resolutions with China.
Attention now turns to closely watched US non-farm payrolls, with economists expecting US unemployment to remain at a 50-year low and the number of jobs to increase by approximately 95,000.
As of 12pm London time, the encouraging Chinese data helped the Chinese market to finish in positive territory, up 0.11%, whilst the Japanese market finished strongly by 1.1%, and the Hong Kong Hang Seng index also finished the week on a high note rising by 1.63%. This is even though Hong Kong fell into technical recession after its economy shrank 3.2% in the third quarter, far greater than the previous quarter’s contraction of 0.6%. Slowing trade in the region has not helped, but the economic gloom has been largely attributed to the ongoing political protests which have hurt the retail and tourism sectors. US markets finished up by 0.5%, whilst European stocks rose marginally higher by 0.13%.
Elsewhere, the Eurozone economy defied expectations with modest growth. Weak external demand and trade tensions have affected the Eurozone economy over the last year, however this seems to have stabilised for now, as GDP grew just 0.2%, unchanged from the last quarter. Worryingly however, inflation dropped to 0.7% in October, even further from the European Central Bank target of 2%. The figure was dragged down by falling energy prices and industrial goods prices.
Meanwhile in the UK, as usual, political uncertainty weighed on markets. UK stocks were under pressure, finishing the week lower by 0.52%, as Parliament finally confirmed a new general election in early December in order to try and resolve the Brexit impasse. This comes after the European Union agreed to delay Brexit until 31 January 2020.
In Fixed Income, US government debt yields fell after the Fed decision to cut interest rates. 10-year benchmark treasury yields, which move inversely to their price fell by 11bps, to 1.68% as of 9am London time. Equivalent 10-year UK Gilt and German bund yields also both fell by 5 bps to finish the week trading at 0.51% and -0.05% respectively.
Within commodities, oil prices notably came under pressure from higher supply, with Brent Crude falling back below the $60 per barrel mark and down 3.5% for the week. This comes after the latest weekly data revealing US crude inventories rose by 5.7 million barrels, dwarfing analyst expectations for an increase of only just 494,000 barrels.
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