GLOBAL MARKETS UPDATE - MONDAY 16 OCTOBER 2017

Posted on 16 Oct 2017

Global stockmarkets were supported by muted US inflation data which led to uncertainty over the pace of US monetary policy tightening.

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United Kingdom

The FTSE 100 rose 0.2% over the week, touching a fresh high mid-week.

The NIESR increased its UK growth estimate for the third quarter from 0.3% to 0.4% due to a better-than-expected performance from both the manufacturing and construction sectors. 

Another round of Brexit negotiations passed without noticeable progress; EU negotiators continued to say that they could not discuss any transition period until the UK’s divorce bill had been settled, while UK negotiators insisted that some progress had been made.

US

The S&P 500 gained 0.2% over the week.

US retail sales rose 1.6% in September, driven by surging auto and auto parts sales as consumers replaced flooded and storm-damaged vehicles.

Headline consumer prices rose 0.5% in September, their largest increase in eight months due to rising gasoline prices in the wake of Hurricane Harvey, and increasing the year-on-year rate to 2.2%, up from 1.9% in August. However, core inflation, which excludes food and energy, held steady at 1.7% on a year-on-year basis for the fifth consecutive month.

Minutes of the Federal Reserve’s September meeting indicated that the sustained low level of inflation was a concern for policymakers. The minutes showed that there were concerns that the low inflation readings this year might reflect not only transitory factors, but also developments that could prove more persistent. That said, most policymakers were still in favour of another rate rise in December.

The preliminary University of Michigan sentiment index rose to its highest level since 2004.

The start of the US third-quarter earnings season saw mixed banking results, with JPMorgan Chase and Citigroup setting aside higher reserves for consumer-loan losses and delivered weak earnings from their bond trading divisions. Wells Fargo’s results were hit by a $1bn charge to cover investigations into its mortgage underwriting practices before the crisis.

Europe

The FTSE Eurofirst 300 rallied 0.4% over the week.

The euro and Spanish assets saw relief rallies after Catalonia backed away from an immediate declaration of independence to allow time for negotiations with Madrid.

Eurozone industrial production surged 3.8% in August.

Japan

The Nikkei 225 climbed 2.2% over the week, closing above 21,000 for the first time since 1996. The market was buoyed by the increased chances of Shinzo Abe being re-elected as Prime Minister later this month after opposition leader Yuriko Koike decided against running for parliament.

Pacific Basin

Asian equities touched their highest levels in a decade, as sentiment was boosted by strong Chinese imports.

China’s exports rose a smaller-than-expected 8.1% in September, while imports surged 18.7% over the month, due in part to robust iron-ore imports.

Singapore’s economy grew at a faster-than-expected rate of 4.6% in the third quarter thanks to a boost from the manufacturing sector.

Australia’s central bank warned that household borrowing is a key risk to the country’s financial system as higher interest rates could see households struggle to repay their debt.

Emerging Markets

The Mexican peso touched a five-month low amid mounting concerns that talks over Nafta may collapse. Mexican stocks have also been affected by fears over the consequences for Mexico’s economy and company earnings, while Mexican bond yields have risen.

Bonds

The yield on the 10-year US Treasury bond closed the week at 2.28%, back below 2.3% for the first time in October, while the yield on the two-year note closed at 1.50%. The difference between the yield on the two-year and 10-year bond dropped below 80bos, nearing its low for the year.

China’s government announced plans to issue $2bn of dollar-denominated sovereign bonds in Hong Kong, the first such issuance in 13 years.

Currencies

The US dollar generally weakened. The Turkish lira weakened more after the US blocked processing of most visas in Turkey following the arrest of an employee at the US embassy.