Global Markets Update Monday, 6 November 2017

Posted on 06 Nov 2017

Global stockmarkets and bonds ratcheted higher over the week, with economic data continuing to show that the global economy was in robust health.

United Kingdom
The FTSE 100 rose 0.7% over the week.

The Bank of England raised the Base Rate by 25bps to 0.5%, its first increase in more than 10 years. Governor Mark Carnet said that UK interest rates are likely to rise twice more over the next three years.

The Markit/CIPS purchasing managers' index for the service sector rose to 55.6, up from 53.6 in September and the strongest rate in six months.

The Markit/CIPS purchasing managers' index for the manufacturing sector rose to 56.3 last month, up from 56 in September.

The Markit/CIPS purchasing managers’ index for the construction sector increased to 50.8 in October, up from 48.1 in September. The data indicates that the sector exited a technical recession in October. However, optimism in the sector dipped to the lowest level in five years.

US
The S&P 500 gained 0.1% over the week.

President Donald Trump named Jerome (Jay) Powell as his pick to lead the Federal Reserve from February 2018. Mr Powell is expected to continue Janet Yellen’s approach of slowly normalising US interest rates, but is seen to be more willing than Ms Yellen in loosening regulation in the financial sector.

The Republicans unveiled the new tax reform bill. It outlined a cut in the corporate tax rate from 35% to 20%, and also reduced the number of tax brackets for individuals. The top rate of 39.6% will be retained for high earners. Multinational companies will potentially be hurt by plans to stop companies from spiriting profits outside of the US, while investment in infrastructure could be hit by ending the tax-privileged status of private-activity bonds. 

The US economy added 261,000 jobs in October as employment in bars and restaurants rebounded after hurricanes Irma and Harvey depressed payroll growth in September. While the increase fell short of expectations, data for September was revise dup to a gain of 18,000 from a loss of 33,000.

Average earnings rose 2.4% year-on-year in October, compared to 2.8% in September. 

The unemployment rate fell to 4.1% in October, the lowest rate since 2000.

The ISM manufacturing purchasing managers’ index slid to a lower-than-expected 58.7 in October, compared to the 60.8 reading in September.

The ISM non-manufacturing index rose to 60.1 in October, up from 59.8 in September and a fresh 12-year high. 

The Conference Board’s Index of US consumer confidence jumped to a 17-year high in October.

In the tech sector, Apple shares rose to a record high as the iPhone X hit shelves around the world. Broadcom was said to be considering a $100 billion bid for rival Qualcomm.

US housebuilders were hit by proposals to limit the amount homeowners can reclaim in tax credits on mortgage interest costs.
 
Europe 

The FTSE Eurofirst 300 rallied 0.7% over the week.

The eurozone economy expanded 0.6% in the third quarter, down slightly from the 0.7% expansion recorded in the second quarter due in part to slight slowdown in France. On a year-on-year basis, eurozone GDP picked up to 2.5%in the third quarter, up from a 2.3% increase in the second quarter.

The eurozone unemployment rate dropped to 8.9%, the first time since 2009 that the rate has fallen below 9%.

Eurozone inflation dropped to 1.4% in October. Core inflation, which excludes food and energy also dropped to 0.9%, from 1.1% in September.
The EU’s official measures of  economic confidence in the eurozone rose to a 17-year high of 114.2 in October, overcoming any concerns over Catalonian independence. 

Japan

The Nikkei 225 jumped 2.4% over the week, closing at a 21-year high.

The Bank of Japan kept monetary policy on hold as it made slight downgrades to inflation forecasts but predicted steady economic expansion.

Retail sales rose 0.8% in September, taking the year-on-year increase to 2.2%.

Industrial production fell 1.1% in September, due to weak shipments of electronic components and machinery.
 
Pacific Basin

In China, the Caixin-Markit purchasing managers’ index of manufacturing activity held steady at 51 in October. In contrast, the official manufacturing purchasing managers’ index disappointed expectations when it slid to 51.6 in October.

The Nikkei Taiwan manufacturing purchasing managers’ index came in at 53.6 in October, down from 54.2 in September, and the lowest level in three months.
In South Korea, the Nikkei-Markit manufacturing purchasing managers’ index came in at 50.2 in October. However, both exports and imports were weaker than expectations. Exports grew 7.1% year on year in October, compared to a rise of 35% in September. Imports rose 7.4% year on year in October, compared to a rise of 22.6% in the previous month.

Emerging Markets
Mexico’s economy shrank by 0.2% in the third quarter as activity was affected by two earthquakes and a string of hurricanes.

Venezuela decided to restructure its $89 billion of debt, triggering the largest debt crisis in Latin America since Argentina’s 2001 default.

Bonds
The yield on the 10-year US Treasury bond eased over the week, closing at 2.34%.

In Germany, the yield on the 10-year Bund also fell, ending the week at 0.36%.

European junk bond yields closed in on an all-time low of 2%, while spreads in the US junk bond market neared their tightest levels since the financial crisis.