Global Markets Update Monday 12 November 2018

Posted on 12 Nov 2018

Global stockmarkets mostly trod water over the week as investors breathed a sigh of relief that the results of the US mid-term elections were broadly as expected.

Please email us if you would like to receive our weekly newsletter direct to your inbox.

United Kingdom

The FTSE 100 gained 0.2% over the week.

The UK economy grew 0.6% during the third quarter, its fastest pace since 2016. However, the economy lost steam as the quarter progressed with no growth seen in either August or September.

The IHS Markit purchasing managers’ index for services slipped to 52.2 in October, down from 53.9 in September and the lowest level in seven months.

US

The S&P 500 rose 1.8% over the week.

The US mid-term elections delivered mixed results for Donald Trump, with Republicans losing control of the House of Representatives (HoR) but increasing their majority in the Senate. Overall, however, the results mean that Democrats can delay the implementation of the Trump administration’s policies. Markets reacted positively, believing that a Democratic-controlled HoR would limit the likelihood of further significant fiscal stimulus and thus reduce the chance of interest rates rising quicker than expected.

The Federal Reserve gave a bullish assessment of the US economy, reiterating that further “gradual increases” in interest rates should be expected.

The ISM non-manufacturing index fell slightly to 60.3 in October, down from a 21-year high of 61.6 in September.

The University of Michigan’s consumer sentiment index eased to 98.3 in November, slightly below the previous month’s reading of 98.6. However, overall, the consumer sentiment index’s year-to-date reading of 98.4 would be the highest annual reading since 2000.

Headline US producer prices jumped 0.6% in October, the fastest monthly rise since September 2012 and taking the annual increase to 2.9%.

Europe

The Eurofirst 300 rose 0.5% over the week.

The European Commission warned Italy that it will breach the EU’s 3% deficit limit in 2020 and come close to doing so in 2019 as it predicts that Italy’s growth rate will be less than Rome’s official forecasts.

Italy’s composite purchasing managers’ index fell to 49.3 in October, the lowest level since November 2013.

Japan

The Nikkei 225 closed the week flat.

The governor of the Bank of Japan hinted at monetary policy tightening, saying that Japan was “no longer in a stage where decisively implementing a large-scale policy to overcome deflation was judged as the most appropriate policy conduct”.

The Nikkei-Markit services purchasing managers’ index rose to 52.4 in October from 50.2 in September, the fastest rate of expansion since April.

Pacific Basin

China’s exports grew 15.6% in October compared to a year earlier, despite higher US tariffs, while imports grew 21.4%. Both figures indicated that the economy had picked up since September.

The Caixin-Markit services purchasing managers’ index fell to 50.8 in October from 53.1 in September and the lowest reading since September 2017.

Indonesia’s GDP grew 5.17% on a year-on-year basis in the three months to September.

Bonds

The yield on the 10-year US Treasury bond closed the week at 3.18%, while the yield on the 10-year German Bund closed at 0.41%.

Currencies

The British pound slipped back below $1.30 after the resignation of a remain-backer cabinet minister Jo Johnson further heightened the problems the UK government will face in gaining parliamentary backing for any deal.

Commodities

Oil prices fell into a bear market, officially defined as a drop of at least 20% from a recent peak. Brent crude touched a three-month low of under $71 a barrel, with increased supplies from Iraq offsetting concerns over decreased supply from Iran as a result of the re-imposition of US sanctions on Monday. In addition, the Trump administration said it would allow eight countries to import limited amounts of Iranian oil: the countries are China, Greece, India, Italy, Japan, South Korea, Taiwan and Turkey. China, India and Japan are the largest importers of Iranian oil.

Copper had its worst week since mid-August while Nickel fell to its lowest in almost 11 months.