Markets & Key Events
20th April 2018
Global equity markets rallied throughout the week, as geopolitical tensions seemed to ease. Investors were particularly relieved, when air strikes on Syria conducted last weekend by the US (United States), France and the UK (United Kingdom) were relatively constrained without further escalation. Moreover, investors’ attention has now turned to corporate earnings season which is now well under way. First quarter earnings results gave markets a boost early on in the week, with Netflix the stand out performer, rising 9% on Tuesday. However, some of the market gains were given up late Thursday with declines led by the Technology sector, after Apple supplier, Taiwan Semiconductor Manufacturing, forecast weak smartphone demand for the second quarter of this year.
Overall, as of 12pm London time, the S&P 500 is up by 1.39% over the week. Shares in Europe followed the late decline in the US Technology sector, though the Eurostoxx 600 remains up 0.5% overall for the week. The Japanese Topix rose 1.08% and Emerging markets also continued to rally with the MSCI Emerging markets up 1.20%.
Europe and the UK (United Kingdom)
On Tuesday, Sterling reached a post Brexit referendum high against the US dollar at $1.4376, as investors were convinced that the Bank of England would raise interest rates on the back of stronger UK employment and wage data. The Office for National Statistics published that February’s average weekly earnings were 2.8% higher year on year, exceeding February’s consumer price index (CPI) figure of 2.7%. The UK unemployment rate declined to a 42 year low of 4.2%.
The prospects for a May interest rate rise however, were put on hold yesterday as UK CPI data showed a surprise drop in inflation for March. The annual CPI fell to 2.5%, lower than the forecast rate of 2.8%. Sterling consequently declined 0.9% on the day and it declined a further 0.3% after dovish comments from Mark Carney, the Bank of England Governor, stating that the rate rise in May was not a foregone conclusion. The weaker pound helped the FTSE 100 rise 0.5% higher on Friday, as the index’s multinational companies generate most of their sales in foreign currencies.
Inflation data was also released for the Eurozone, with consumer prices rising slightly less than expected. Year on year inflation was up 1.3% for March, but lower than the 1.4% estimate. The services sector was the main contributor, followed by food, alcohol and tobacco.
Asia and Australia
In Asia, China’s economy grew by 6.8% annually for the first quarter this year, above the government’s target of 6.5%. Despite fears of a trade war with the US, as well as a declining trade surplus, a rebound in private investment contributed to the stronger growth figure. Notably, investment growth from state owned enterprises was at the slowest pace on record amid a government deleveraging campaign, focused on reducing excess capacity in lossmaking sectors such as coal, steel and aluminium.
The Australian S&P/ASX 200 is up 0.66% over the week, advancing for a third straight week. The energy and mining sector was the best performer for the period, supported by improving commodity prices, whilst banks were the biggest drag on the index, as financial services continue to be under the scrutiny of the banking royal commission which is investigating financial misconduct in the sector. The Australian dollar dropped this week on the news that the economy only added 4,900 jobs, below expectations of 20,000 jobs. The currency finished the period trading at US77.06¢.
US Treasuries sold off over the week, with 10-year US Treasury yields, which moves inversely to its price, reaching its highest level this month at 2.92%. The recent improvement in risk sentiment has dampened demand for perceived safe haven assets. 10-year equivalent UK Gilts and German bunds also sold off, with yields rising 9 basis points for both bonds this week.
Oil rallied this week, with the Brent crude oil price briefly touching $75 per barrel, its highest point since late 2014. The rise in prices came after data from the Energy Information Administration showed that US crude inventories had fallen by more than 1.1m barrels last week. Furthermore, the commodity was bolstered by reports that the biggest oil exporter, Saudi Arabia was looking for prices to rise further above $80 per barrel, indicating no changes to the current OPEC (Organization of the Petroleum Exporting Countries) supply cuts. OPEC, Russia and several other producers will meet this June to review their current production targets.