GLOBAL MARKETS UPDATE - MONDAY 20 NOVEMBER 2017

Posted on 20 Nov 2017

Global stockmarkets remained unsettled, with weaker-than-expected economic data in China adding to the unease. Commodity prices also retreated.

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United Kingdom

The FTSE 100 slid 0.7% over the week.

UK consumer prices held steady at 3.0% in October, compared to forecasts for a rise to 3.1%. However, food prices rose at their fastest rate in four years as the weaker pound pushes up the costs of imported food.

UK wage growth held steady in the third quarter of the year, increasing 2.2% compared with a year earlier. In real terms, wages fell.

UK retail sales rose 0.3% in October. However, compared to a year earlier, retail sales fell 0.3% due to unseasonably warm weather. This was the first annual fall since March 2013.

US

The S&P 500 ended the week unchanged, held back by uncertainty over tax reform and the latest developments in the investigation as to whether Russia tampered in the 2016 US presidential election.

Headline consumer prices slipped to 2.0% in October, down from 2.2% in September. However, core consumer prices climbed to 1.8%, up from 1.7% in September. Factory gate prices, as measured by producer prices, rose to 2.3% year-on-year in October, up from a rate of 2.1% in September. The data reinforces evidence that the transitory factors, which had depressed inflationary pressures earlier in the year, were starting to fade.

US retail sales rose an unspectacular 0.2% in October. However, after months of gloom, the US retail sector rebounded over the week. Walmart posted its strongest quarterly US sales in more than eight years. Mattel also rose sharply amid news that rival toymaker Hasbro had approached the company about a takeover.

Shares in General Electric fell after it lowered its 2018 profit forecast and cut its dividend.

Europe

The FTSE Eurofirst 300 lost 1.3% over the week.

The eurozone economy grew 0.6% in the third quarter, taking the year-on-year rise to 2.5%. Across the wider EU, the German economy expanded 2.8%, but Romania was the strongest market, growing 8.6% as increased government spending on pensions and public sector salaries boosted private consumption.

Eurozone inflation slipped from 1.5% to 1.4% in October, but core inflation rose to 1.1%, higher than the flash estimate of 0.9%.

The Zew indicator of German economic sentiment rose to 18.7 in October.

Angela Merkel emerged from a self-imposed deadline of Thursday evening without agreement on forming a coalition government.

Japan

The Nikkei 225 dropped 1.3% over the week.

Japan’s GDP expanded at an annualised pace of 1.4% in the third quarter. While lower than the 2.6% rate of growth recorded in the second quarter, this is the seventh consecutive quarter of growth as exports help to compensate for underwhelming domestic demand. Consumption was weak and business investment modest, but exports were strong. Inventory building also boosted growth.

Pacific Basin

Australian unemployment fell to a four-year low of 5.4% in October.

In China, retail sales, industrial production and fixed asset investment were all weaker than expected in October. Retail sales rose 10%, down from 10.3% in September; industrial production grew 6.4% on a year-on-year basis, down from 6.6% in September; while fixed asset investment grew 7.3% in the first ten months of 2017, down from 7.5% year-to-date in September.

China’s central bank injected $47bn into its financial system, its largest intervention in nearly a year, to try to calm concerns that Beijing’s crackdown on debt-fuelled growth would put a brake on the country’s rapid expansion.

Malaysia’s GDP expanded at a year-on-year rate of 6.2% in the third quarter, its fastest pace in more than three years. In the Philippines, the economy grew by 6.9% year-on-year over the same period.

Credit rating agency Moody’s upgraded India’s sovereign rating, citing expectations of continued progress for economic and institutional reforms.

Bonds

The US yield curve remained the flattest in a decade with the yield on the 10-year US Treasury bond closed the week at 2.34%, while the yield on the two-year note ended at 1.72%.

US high-yield bond funds suffered withdrawals of $5.1 billion in the week to November 15, the largest single week of outflows since market turbulence around the Russian invasion of Ukraine in August 2014, according to data from EPFR. High yield spreads have now risen 59 basis points from their October lows amid concerns over valuations and disappointing earnings news from a handful of companies.

Yields on China’s benchmark 10-year sovereign bond rose above 4% for the first time since 2014. Comments at the Communist party Congress have proved the catalyst for the sell-off as the outgoing chief of the People’s Bank of China warned of the risks from excessive debt and speculative investment.

Commodities

Oil prices weakened back towards $60 a barrel, undermined by an International Energy Agency report that forecast higher US crude output in coming years.

Metals prices also retreated, unsettled by signs of weaker-than-expected Chinese growth. Copper touched a one-month low.