Global Markets Update - Monday 10 July 2017

Posted on 10 Jul 2017

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Global stockmarkets were unsettled by the continued rises in bond yields. An intercontinental ballistic missile test by North Korea also caused some concern.

United Kingdom

The FTSE 100 gained 0.5% over the week.

Manufacturing output fell by 0.2% in May compared with April. This was due to a 4.4% drop in car production, the biggest fall since February last year and reflecting a sharp decline in new car registrations. Meanwhile, the wider measure of  industrial production fell 0.1%, following a 0.8% fall in April.

Construction output fell by 1.2% in May from April, compared to expectations of a 0.6% rise. It was also down 1.2% in the three months to May - the sharpest such drop since October 2015.

Real household disposable incomes fell by 2% in the first quarter of 2017, compared to 2016. This is the steepest drop in five years and is primarily due to rising inflation.

Worldpay was sold to US tech firm Vantiv for £9 billion.

US

The S&P 500 inched higher by 0.1% over the week.

Minutes of the latest  FOMC meeting showed a number of members warning that allowing unemployment to fall too low could lead to the US economy overheating or the emergence of financial stability risks.

The US economy added a larger-than-expected 222,000 jobs in June. In addition, estimates for May were revised up from 138,000 to 152,000 while April’s data was revised up from 174,000 to 207,000.

The unemployment rate rose slightly from May’s 16-year low of 4.3% to 4.4% in June. Meanwhile, average wages rose 2.5% year-on-year.

The ISM manufacturing index rose to its highest levels in three years in June, while the ISM non-manufacturing index rose to 57.4, up from 56.9 in May.

Europe

Minutes of the European Central Bank’s latest policy setting meeting showed that policymakers had discussed both dropping the easing bias and its quantitative easing,

Data for May’s industrial production beat expectations in France, Germany and Spain.

The EU and Japan agreed a free-trade deal, which should come into effect in 2019.

Japan

The Nikkei 225 lost 0.5% over the week.

The Bank of Japan’s latest Tankan survey (June) showed a rise to 17, up from 12 in the first three months of the year. The results indicate that confidence at large manufacturers is at its highest level since early 2014.

Pacific Basin

The Reserve Bank of Australia gave an upbeat economic outlook but held interest rates at 1.5% at its July meeting. Investors had expected the RBA to adopt a more hawkish tone.

In China, the Caixin-Markit manufacturing purchasing managers’ index rose to 50.4 in June after falling to a 110-month low of 49.6 in May.

Tencent shares dropped after it started to limit the time under-12s could spend on its top-grossing Honour of Kings game.

Samsung Electronics reported a record quarterly profit thanks to surging global demand for memory chips and display panels.

Emerging Markets

Inflation in Brazil fell to 3% in the 12 months to the end of June, down from 3.6% the previous month. This marks the 10th straight month of decline and takes Brazilian inflation to its lowest level since April 2007.

Many shops in  India shut as the country implemented its unified goods and services tax. The new tax will replace a tangle of local levies but retailers and manufacturers have repeatedly warned the government that they are unprepared.

Indonesia’s manufacturing sector fell into contraction after just four months of uninterrupted growth as the Nikkei-Markit manufacturing purchasing managers’ index fell to 49.5 in June, down from 50.6 in May.

Bonds

The yield on the 10-year US Treasury bond closed the week at a two-month high of 2.39%. The yield is now 25bps higher than it was on 26 June, the day of apparently coordinated hawkish comments by several central banks.

The yield on the 10-year German Bund closed the week at an 18-month high of  0.56%, and has risen 31bps since June 26.

In Japan, the yield on the 10-year bond ended the week at 0.10%, widely seen as the upper end of the Bank of Japan’s target range.

China and Hong Kong launched a bond trading link. Bond Connect is a sister scheme to Stock Connect that links the stockmarkets in Shanghai and Shenzen with Hong Kong.

Commodities

Oil prices retreated once more, with Brent Crude closing at just above $46 a barrel.