GLOBAL MARKETS UPDATE - MONDAY 5 FEBRUARY 2018

Posted on 05 Feb 2018

United Kingdom

The FTSE 100 dropped 2.9% over the week.

Theresa May came under increased pressure to clarify her stance on Brexit amid speculation that the UK was pushing for the trade in goods to stay in the single market.

The IHS Markit construction purchasing managers’ index fell to 50.2 in January, compared with 52.2 in December. The fall was more marked than had been expected.

The IHS Markit manufacturing purchasing managers’ index was also weaker than expected, coming in at 55.3 in January, down from December’s reading of 56.2.

Vodafone is in talks to buy parts of Liberty Global’s European assets is a deal rumoured to be worth €14bn.

US

The S&P 500 lost 2.9% over the week, its biggest daily fall while Donald Trump has been president.

Non-farm payrolls rose by a stronger-than-forecasts 200,000 in January, while average monthly payroll gains for 2017 were revised up by 10,000 to 281,000. The unemployment rate held steady at 4.1%.

Average hourly earnings rose 2.9% on a year-on-year basis in January, the highest annual rate since 2009.

The ISM manufacturing index edged down to 59.1 in January, from 59.3 in December.

The Federal Open Market Committee held interest rates unchanged but gave an upbeat assessment of the economy. The FOMC raised its near-term outlook for inflation, saying it expected year-on-year readings to move up this year” before stabilising around its 2% goal in the medium term.

US initial public offerings are off to their strongest start to a year on record, as the equity market rally lures companies to list. According to Dealogic, companies have raised nearly $8bn in IPOs so far this year, the most since it began tracking the market in 1995. At 17, the number of deals is the highest year to date since 1996.

The Fed’s preferred measure of inflation, the Core Personal Consumption Expenditure Index (PCE), held steady at 1.5% in December.

The Conference Board’s consumer confidence index rose to 125.4 in January, compared to an upwardly revised figure of 123.1 in December.

Amazon, Berkshire Hathaway and JPMorgan Chase were to team up to form a not-for-profit healthcare group charged with reducing bills for their combined one million employees and “potentially all Americans”.  

Alphabet delivered disappointing fourth-quarter results, but Amazon reported record profits. 

Europe

The Eurofirst 300 declined 3.2% over the week.

The eurozone economy expanded by 0.6% in the final quarter of 2017. This takes growth over 2017 as a whole to 2.7% last year, the strongest growth since the 3% rate seen in 2007, according to Eurostat.

The flash estimate of the IHS Markit eurozone composite purchasing managers’ index rose to 58.6 in January, up from 58.1 in December. The data pointed to the strongest pace of expansion in the private sector since June 2006, as companies expanded their workforce numbers to the greatest extent since September 2000 and inflows of new orders were the second-largest since July 2007.

The European Commission’s economic sentiment index fell back in January from December’s 17-year high, due to less optimistic reports from service providers and retailers, particularly in France and Italy.

Eurozone inflation fell to 1.3% in January compared to the same month in 2017, the lowest reading since July 2017. However, core inflation rose to 1% in January, compare to 0.9% in December.

Consumer group JAB bought Dr Pepper for $18.7bn. the acquisition follows its purchase of Keurig Green Mountain, Panera Bread, Krispy Kreme and Peet’s Coffee.

Japan

The Nikkei 225 slid 1.5% over the week.

The Nikkei-Markit Japan manufacturing purchasing managers’ index rose to a four-year high of 54.8 in January, compared to 54.0 in December.

Japanese industrial production grew faster than expected in December, signalling a pick-up in activity. Industrial production rose 2.7% month on month in December, according to preliminary data from the Ministry of Economy, Trade and Industry.

Pacific Basin

The Australian dollar, one of the strongest currencies so far in 2018, dipped after consumer prices held steady at 0.6% in the final quarter of the year. Analysts had expected inflation to rise.

China’s official manufacturing purchasing managers’ index published by China’s National Bureau of Statistics edged lower to 51.3 in January, from 51.6 in December. The Caixin-Markit manufacturing purchasing managers’ index was unmoved from the previous month’s reading at 51.5 in January.

Elsewhere in the region, Nikkei-Markit manufacturing purchasing managers’ indices picked up: South Korea’s rose to 50.7 in January, up from 49.9 in December; Taiwan came in at 56.9 in January, the highest since April 2011, up from 56.6 in December.

Emerging Markets

Mexico’s economy grew by 1% in the fourth quarter, taking its 2017 growth rate to 2.3%. Construction activity in the wake of last September’s twin earthquakes was seen helping lift the economy in the final quarter.

Colombia’s central bank cut its benchmark interest rate by 25bps to 4.5%. However, policymakers called an end to the bank’s 13-month easing cycle, citing a smaller-than-expected decline in annual inflation during December, a recovery in external demand as well as the prospect of sustained lower oil prices.

In his annual budget, India’s finance minister announced the end of capital gains tax exemption for equity investors. The budget, which is the last before elections in 2019, also introduced measures aimed at placating rural voters and helping small businessmen, but missed plans to reduce the fiscal deficit to 3% of GDP.

Russia’s economy grew 1.5% in 2017, the first annual rise for three years. While the data was weaker than forecasts, agriculture and mining fared well, helped by reciprocal sanctions imposed by Moscow that ban many food imports from the EU.

Poland’s GDP increased by 4.6% in 2017, helped by strong domestic consumption, according to preliminary estimates from Statistics Poland.

Turkey’s central bank lifted its inflation forecast for the end of 2018 to 7.9%, up from its previous estimate of 7%.

Bonds

The yield on the 10-year US Treasury bond jumped to 2.84%, its highest level in four years, following signs that US wage growth is accelerating at the fastest pace in almost a decade – yields have now risen by more than 40bps since the start of 2018. The yield on the 30-year bond broke back through the 3% barrier to close the week at 3.08%, but the yield on the two-year note was relatively stable, closing at 2.15%.

The yield on the 10-year German Bund closed the week at 0.71%, its highest level since 2015, having touched a mid-week high of 0.74%. Meanwhile, 5-year Bund yields moved back into positive territory for the first time since late 2015. The 10-year UK gilt yield touched 1.56%, its highest since May 2016.