Global Markets Update Monday 30 April 2018

Posted on 30 Apr 2018

Global stockmarkets were mixed as investors digested first-quarter earnings against the backdrop of the threat of trade tariffs, US sanctions against Russian groups, higher oil prices, rising bond yields and volatile foreign exchange markets.

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United Kingdom

The FTSE 100 rallied 1.8% over the week, reaching its highest level since the start of February.

UK GDP expanded by just 0.1% between January and March, the lowest rate of expansion since the first quarter of 2012. The slowdown from 0.4% in the previous quarter was driven by a sharp fall in construction output and sluggish manufacturing and service sector activity. The ‘Beast from the East’ had minimal impact on growth as slower construction and high street retail activity was offset by higher demand for energy and online sales.

The GfK consumer confidence index slipped in April. Consumers appeared to be becoming more pessimistic about their personal finances despite higher wage growth and strong employment.

Two of the UK’s ‘big four’ supermarkets, Sainsbury’s and Asda, confirmed they were in advanced talks re a merger.

Comcast, the US cable group, made a £22bn offer for Sky – almost £4bn more than the existing bid from Twenty-First Century Fox.

US

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

With just over half the companies in the S&P 500 Index having reported first-quarter earnings, earnings per share growth is running at 23.2% up from a year ago, according to FactSet. That is the highest rate of growth since the third quarter of 2010. In addition, 79% of companies reporting so far have beaten analysts’ forecasts.

US GDP expanded 2.3% on an annualised basis in the first quarter of 2018, a modest slowdown from the 2.9% rate of expansion recorded in the final quarter of 2017.

US private sector pay grew 2.9% in the first quarter compared to the same period the previous year. This is the fastest pace since 2008.

Amazon shares hit a record high after it reported a 43% surge in revenues for the first quarter, fueled by online shopping in the US. It also said that its profit more than doubled. Facebook also reported a strong rise in quarterly revenues, despite its recent woes relating to data breaches. However, Alphabet shares sank as worries over capital spending and margins at the Google parent company overshadowed a big rise in revenues. US semiconductor manufacturers also weakened amid fears of weak demand from Apple. Outside tech stocks, Caterpillar fell after it issued cautious guidance for the rest of the year, saying that the first three months of 2018 were expected to be “the high-water mark for the year”.

Europe

The Eurofirst 300 rose 0.8% over the week.

Mario Draghi, European Central Bank president, acknowledged a “moderation” in the pace of the eurozone recovery, but signalled no change in monetary policy. While the ECB kept its monetary policy on hold, it continued to promise to buy bonds under its quantitative easing programme until the end of September and keep interest rates at their current record lows “well past” the end of their asset purchases.

The “flash” estimate of the eurozone composite purchasing managers’ index for April held steady after two consecutive sharp falls in March and February.

After falling sharply in March, the European Commission’s economic sentiment indicator remained unchanged in April.

The Ifo index of German business confidence recorded its fifth successive monthly fall in April.

French GDP rose 0.3% in the first three months of 2018, a significant slowdown from the 0.7% expansion recorded in the final quarter of 2017. 

Japan

The Nikkei 225 gained 1.4% over the week.

The Bank of Japan held interest rates steady at its April meeting but abandoned a pledge to hit its 2% inflation target “around fiscal 2019”, dropping any reference to any specific timescale.

Japanese retail sales grew at a slower-than-expected rate of 1% year-on-year in March.

The Nikkei-Markit flash manufacturing purchasing manager’s index edged higher to 53.3 in April, up from 53.1 in February.

Pacific Basin

Industrial profits at large-scale Chinese companies rose 3.1% on a year-on-year basis in March, far slower than the 10.8% rise recorded in February and the weakest rate of growth since December 2016.

South Korean shares rallied on hopes of improved relations between North and South Korea. The latter’s economy expanded 2.8% year on year in the first quarter, bolstered by government spending. Meanwhile, Samsung Electronics reported record operating profits on strong chip demand.

Emerging Markets

Emerging markets were affected by strength in the US dollar following the rise in 10-year US Treasury yields to over 3%.

Russia’s central bank held interest rates steady following seven straight months of cuts. Inflation risks are rising as the rouble weakens amid pressure from tough new US sanctions.

Turkey’s central bank raised one of its main interest rates by 75 bps to 13.5%, dismissing calls from President Recep Tayyip Erdogan to keep credit cheap ahead of June’s snap elections. The move is in an attempt to curb inflation which is running around 10%, double the official target.

Bonds

The yield on the 10-year US Treasury bond rose above 3% for the first time since early 2014, while the yield on the two-year note approached 2.5%, a level last seen in 2008.

US high-yield bonds continue to outperform their higher rated counterparts, as limited supply and investor demand helps credit spreads to narrow towards their 10-year lows. High-yield fund flows have turned positive, with a $2.7bn weekly net inflow, the largest of any week since December 2016, according to data from EPFR. In contrast, spreads for investment-grade bonds have widened around 10bps so far this year.

The yield gap between Chinese and US bonds fell to as low as 0.5% during the week in the aftermath of a cut in bank’s reserve requirement ratio from the People’s Bank of China.

Commodities

Brent crude hit $75 as fears mounted over the prospect of new US sanctions on Iran.

Currencies

The weaker-than-expected UK GDP data led to a sharp fall in sterling as analysts revised down expectations that UK interest rates would be raised in May.

Sweden’s currency fell to its lowest level since the end of the financial crisis in 2009 after the Riksbank once again pushed back its forecast for the first increase in interest rates since they were lowered more than three years ago.

The Australian dollar was hovering at a four-month low against its US counterpart after first quarter inflation figures came it an a lower-than-expected 1.9% on a year-on-year basis.