Global Markets Update - Monday 26 June 2017

Posted on 26 Jun 2017

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Global stockmarkets ended the week broadly unchanged, although oil prices slid to the lowest levels this year.

United Kingdom

The FTSE 100 slid 0.5% over the week.

Mark Carney, governor of the Bank of England said it was “not yet the time” for a rise in interest rates, citing falling wage growth and the uncertainty caused by Brexit. His comments came shortly after Chancellor Philip Hammond called for a smooth Brexit to avoid a "cliff edge" for businesses when the UK leaves the European Union. In contrast, the Bank’s Chief Economist indicated he was in favour of raising rates soon.

Barclays, its former chief executive and three other top ex-bankers were charged over arrangements struck with Qatar during the bank’s 2008 fundraising to stay out of UK government control.

Chipmaker Imagination Technologies put itself up for sale, citing Apple’s decision to stop using its products.

US

The S&P 500 ended the week up 0.2%.

Healthcare stocks had one of their best weeks since November’s election as investors bet that Donald Trump’s administration will resist cracking down on drug prices. During the week, EvaluatePharma cut is global revenue forecast for drugmakers for the first time in a decade, amid signs rampant price growth inflation in the US is starting to ease.

Big US banks are on track to increase payouts to shareholders since they now have sufficient capital to keep trading through even the most severe downturn.

US buybacks have fallen 17.5% year-on-year in the first quarter of 2017, reducing one of the major supports for the US stockmarket.

Europe

The FTSE Eurofirst 300 slid 0.2% over the week.

Emmanuel Macron secured a decisive parliamentary majority, securing 350 out of 577 seats in the National Assembly.

Two Italian mid-sized banks Veneto Banca and Banca Popolare di Vicenza are to be wound down by the Italian authorities after the European Central Bank confirmed on that they were “failing or likely to fail”. 

Norway’s central bank dropped its easing bias during the week, leaving rate unchanged and reviewing the future path of rates higher.

Japan

The Nikkei 225 rose 1.0% over the week.

The IMF declared Abenomics a success after Japan enjoyed its longest sustained run of growth in more than a decade and cut unemployment to just 2.8%. The fund called on Mr Abe to avoid tightening fiscal policy next year and to raise taxes slowly thereafter, with the 2% jump in consumption tax scheduled for 2019 to be replaced by regular small rises.

Pacific Basin

China’s CSI 200 Index closed the week at an 18-month high following MSCI’s decision to include 222 domestic Chinese, or A-share, stocks in its global emerging markets benchmark index from next year.

In China, the banking regulator ordered domestic lenders to check the “systematic risk” presented by certain companies’ overseas buying sprees. The companies involved, whose shares fell on the news, includes companies controlled by Dalian Wanda, Fosun International and HNA.

Emerging Markets

Brazilian equities have rebounded from their sharp sell-off in May when President Temer was caught on tape allegedly endorsing bribes amid hopes that reforms will not be derailed.

MSCI ruled that Argentina should still be included within its frontier market index, rather than being promoted to the emerging markets index.

Commodities

Brent crude dipped below $45 a barrel for the first time in 2017 amid continued doubts that supply cuts by major producers will be enough to reduce the global crude glut.

Bonds

The yield on the two-year gilt hit 0.26%, its highest level since last November, amid a perceived more hawkish stance from the Bank of England.

The yield on the 10-year US Treasury bond closed the week at 2.15%, while the yield on the 10-year German Bund closed at 0.26%.

Falling oil prices put pressure on the US high yield market. US cable company Charter Communications pulled a $1.5bn junk bond during the week, while Virgin Media and plastics company Berry Global yanked $3.4bn and $2.2bn loan re-pricings respectively.

South African bond yields rose as the country’s anti-corruption watchdog urged the president to shift the focus of the central bank’s mandate from targeting inflation to promoting a “balanced and sustainable economic growth”.

Argentina launched a 100-year bond, only the second Latin American country to do so, with the first being Mexico in 2010.

Russia returned to the capital markets for only the second time since being hit by sanctions in the aftermath of its invasion of Ukraine in 2014.

Polish bonds have generated the strongest returns in Europe so far this year amid fading political uncertainty. Poland  has posted the strongest growth in central and eastern Europe in the first four months of 2017, driven by growing domestic demand, a relatively cheap currency and strong eurozone demand.