Markets and key events | 5th April 2019

Economic releases point towards a strengthening global economy

It has been a strong week for equity markets, as a series of economic data releases pointed to an improving picture for global growth, following weak data at the end of 2018 contributing to the US Federal Reserve (Fed) switching tack to a more accommodative stance for interest rates.  The positive mood was further reinforced by a report in the Financial Times suggesting that US and Chinese officials have resolved most of the issues standing in the way of bringing the trade dispute to a close.

Equity markets rise…

Over the week up to 12pm London time on Friday, within developed markets, the US S&P 500 index rose 1.6%, the Japanese Topix index gained 2.1%, EuroStoxx 600 rose 2.4%, UK’s FTSE All Share 1.9%, whilst the Australian S&P/ASX 200 was flat at 0.0%.  The Emerging Markets index rose 2.1%, with the Chinese Shanghai Composite index having risen a massive 5.0% and the Hong Kong Hang Seng 3.1%.

Whilst defensive assets give back some of their gains

Against this background, government bonds gave up a little of their outperformance year to date, with 10-year US Treasuries trading at a yield of 2.53%, UK Gilts 1.13%, and German Bunds 0.012%, having previously been trading in negative territory, with prices moving inversely to yields.  Gold also traded down, now priced at $1,294 an ounce.  The improving global growth outlook has been positive for oil prices, with Brent Crude momentarily touching $70 a barrel earlier in the week, currently trading at $69.2, and US WTI (West Texas Intermediate) trading at $62.0 a barrel.

Lead indicator points towards a pick up in US manufacturing, whilst the Consumer disappoints

The week began with the release of the highly regarded US ISM (Institute for Supply Management) manufacturing index coming in ahead of expectations at 55.3 in March (anything above 50 indicating expansion), bouncing off a two year low from February.  The report showed new orders, production and employment all rose.  This was counterbalanced by US retail sales which unexpectedly fell in the month of February by 0.2%. However, January’s rise of 0.2% was subsequently revised upwards to a 0.7% gain.  Nonetheless, this mixed picture will likely keep the Fed on hold with interest rates, with Consumers representing 68% of the overall US economy.  The keen awaited US non-farm payroll and wage data is due out today at 1.30pm London time.

Eurozone data mixed, but a beneficiary of the improving global picture

There was mixed data out of Europe, with German industrial output rising 0.7% in February, rebounding faster than expected.  However, the closely watched IHS Purchasing Managers Index (PMI) lead indicator was revised down to 44.1 in March, the lowest level since the Eurozone debt crisis in February 2012.  The French service sector fell back into contraction in March as measured by the IHS PMI, which fell beneath 50 in March to 49.1, nevertheless, it was ahead of expectations.  Notwithstanding, there were relatively robust readings from domestic demand in German, Spain and Italy, all pointing towards expansion. Despite the mixed readings, European equity markets made positive gains, as the Eurozone economy is increasingly dependent on the wider global economy, rather than relying on their own fragile domestic economy.

Positive Chinese data leads to big gains and hopes of a resolution to the US/China trade war

Chinese equity markets rose to their highest level in a year, as both official and private sector activity surveys pointed to a pick up in the manufacturing sector in the world’s second biggest economy.  The Caixin-Markit China manufacturing PMI, which focuses on smaller and private companies, rose above 50 to 50.8 in March and employment grew for the first time in more than five years.  China’s official manufacturing PMI released last Sunday, also rose to 50.5 in February, focusing on larger companies and state-owned enterprises.  In the same vein, the Chinese service sector activity index rose to a 14-month high in March, mirroring improvements in the manufacturing sector.

Australian equities flat despite strengthening iron ore prices

The Australian S&P/ASX 200 finished flat over the week with Materials the best performing sector as miners benefitted from strengthening iron ore prices, which broke over $90 a tonne.  Real Estate and utilities were the main detractors for the week.

Elsewhere, with little surprise, the Reserve Bank of Australia (RBA) left main interest rates unchanged for the 32nd month in a row at 1.50%. As stated last month, the central bank remains open to cutting rates citing risks to global economic growth and a slowing housing market in the country. The Australian dollar fell by 0.5% on the news to US $0.7079, though it has finished higher at the end of the week at US $0.7114.

UK still in the EU despite passing of the 29th March deadline

Theresa May, Prime Minister of the UK, having failed to leave the European Union on the 29th March, finally turned to the opposition Labour party, offering to work with Jeremy Corbyn to end the Brexit impasse, potentially pointing towards a softer exit deal. The uncertainty over Brexit has provided a brief bright spot for UK manufacturing, as in a world increasingly geared towards ‘just in time’ manufacturing, UK companies have benefitted from stock piling amid fears of a no-deal Brexit.  The IHS Markit Manufacturing PMI rose to 55.1 in March, the highest reading for 13-months.  However, this is likely to lead to a subsequent slowdown as inventories are worked through.


The information provided above is for Professional Advisers: All data has been sourced from Lipper. Any investment must be made in conjunction with reading the relevant KIID or Investment Mandate. Clients should be aware that the value of investments and the income from the may fall as well as rise and they may not get back the amount originally invested. Investors should note that the views expressed and information given were current at the time of publication but may no longer be so and/or may have been acted upon by the Investment Manager already. Source SmartIM