Market Weekly Review - 12th October 2018

United States

- U.S. stock markets rose strongly on Friday on strong bank earnings results, but the rebound failed to offset the sharp declines earlier in the turbulent week on worries about trade and higher interest rates. The Dow Jones Industrial Average rose 1.35% on Friday to 25,339.99, but still fell 4.19% for the week. The S&P 500 rose 1.42% on Friday but fell 4.10% on the week to end at 2,767.13. The Nasdaq rose 2.29% on Friday but fell 3.74% on the week to 7,496.89. All three indexes have posted the worst start to a quarter since early 2016, with the Dow and S&P down for the third week in a row and the Nasdaq falling for the second straight week.

- The yield on benchmark 10-year U.S. Treasuries fell sharply to 3.1613% at the end of the week from 3.2328% at the previous week’s close, the largest weekly decline in two years, as investors sought the fixed-income due to stock market turbulence.

- The consumer price index rose only slightly in September, with the headline and core measures below expectations and the year/year rate for the overall measure falling from August, data released Thursday morning by the Bureau of Labor Statistics showed. Overall CPI posted a 0.1% increase, below the 0.2% gain expected by both analysts and market participants, while the core CPI rose 0.1%, also below expectations.

- US President Donald Trump and Chinese President Xi Jinping are expected to meet at the G-20 leaders’ summit in Buenos Aires, Argentina in late November, the Wall Street Journal reported. The meeting, if it takes place, may be one of the last chances for the world’s two largest economies to begin negotiating how to resolve their trade dispute. Trump has threatened to impose tariffs on an additional $267 billion in Chinese imports, but it is unclear whether he will proceed before the Xi meeting or postpone that decision until after.

- The U.S. Treasury will not label China a currency manipulator because it does not meet the criteria for such a designation, US news organizations reported Thursday. The reports came after U.S. Treasury Secretary Steven Mnuchin warned China in a Financial Times interview Monday that it must now devalue its currency for competitive advantage.

- JPMorgan Chase, America’s largest bank, posted better-than-expected profits in the third quarter, as strong gains in consumer banking offset a 10% drop in fixed income trading revenues. Net income rose 24% to $8.38 billion, above expectations for $7.67 billion, and well above the $6.73 billion earned in the year-earlier period.

- Wells Fargo also reported strong profits in the third quarter, with net income up 33% to $6 billion, ahead of expectations of $5.7 billion, as the troubled bank’s cost-cutting steps bore fruit.

- Google announced Monday that it had shut down its Google+ social network after it discovered a bug in its software that allowed outside developers see data on up to 500 million network users. Google had hoped the network would challenge Facebook.

- Microsoft will invest in southeast Asian ride-hailing company Grab, with the two firms agreeing to collaborate on technology projects, including big data and artificial intelligence. The companies did not disclose the amount of the investment. The Microsoft investment comes a week after Softbank reportedly was close to investing an additional $500 million in the company.


United Kingdom

- London stocks fell last week, as Brexit worries continued. The FTSE 100 dropped 0.16% on Friday and fell 4.41% on the week to finish at 6,995.91.

- The yield on 10-year Gilts also fell sharply, to 1.6330% at the end of last week from 1.7220% at the end of the previous week, as investors bought bonds as stocks dropped.

- UK rolling 3-month/3-month GDP rose 0.7% in August, the government reported, riding on the coattails of a strong July.

- The British government and the European Commission were close to an agreement on a Brexit transition plan, that would create a “temporary” customs union, but without an end date. The plan is highly controversial, with Eurosceptics and members of Northern Ireland’s Democratic Union party rallying to oppose Prime Minister Theresa May’s plan. The fate of May’s government, and so the plan, are unclear

- The Bank of English warned Wednesday that 41 trillion pounds worth of financial derivatives maturing after Brexit unless European authorities cleared up whether the clearing of such contracts would violate EU law after the UK leaves the EU. EU banks would bear the costs of any disruption, which could run into hundreds of billions of euros.

- Sir Richard Branson cut off negotiations with Saudi Arabia’s sovereign wealth fund on a $1 billion investment in Virgin’s space entities and ended his participation in two advisory groups after the disappearance of Saudi Jamal Khashoggi.



- European stocks fell last week on concerns about weaker growth and global trade tensions. The Eurofirst 300 dropped 0.25% on Friday, pulling the index down 4.62% on the week to end at 1,410.10.

- The yield on benchmark 10-year Bunds fell to 0.4980% last week from 0.5730% at the previous week’s close, in line with other global bond markets.

- German industrial production declined by 0.3% month-on-month in August, leaving the year-on-year rate at -0.1%. Analysts had expected a gain of 0.4%, following a drop of 1.3% m/m in July (downwardly revised from -1.1%).

- German luxury carmaker BMW said Thursday it had agreed to pay 3.6 billion euros to increase its stake in its Chinese joint venture to 75% after Beijing cut restrictions on foreign ownership stakes in domestic auto manufacturers. The joint venture in Shenyang with Brilliance Auto Group will increase production, including for new energy vehicles and extend the JV until 2040. The move will give BMW greater control over the JV’s operations

- The sharp selloff in Italian government debt due to the populist government’s anti-austerity budget measures is putting pressure on Italian banks. The banks hold 387 billion euros in Italian sovereign bonds and so are heavily exposed to rise in borrowing costs to a five-year high.



- The Nikkei 225 Index rose 0.46%% on Friday to 22,694.66 on hopes for an easing of global trade tensions but fell 4.58% for the week as global financial market turbulence.

- The yield on 10-year Japanese government bonds fell to 0.1500% at the end of last week from 0.1550% at the previous week’s close as the Bank of Japan continued to allow slightly higher yields.

- Japan's core machinery orders, which exclude volatile orders for power generation equipment and ships, rose 6.8% on month in August, data released by the Cabinet Office Wednesday showed. It was the second straight month-on-month rise following an 11.0% gain in July, indicating demand for capital investment hasn't been affected by uncertainties caused by the U.S.-China trade dispute.

- Saudi Arabia’s sovereign wealth fund is preparing to invest an additional $45 billion in Softbank’s Vision Fund, which seeks to invest in successful cutting-edge technology companies. The additional money would double the Saudi’s investment in the Vision Fund.


Asia Pacific (ex. Japan)

- Chinese stocks rose 0.91% to 2,606.91 on Friday on a report that US President Trump and Chinese President Xi would meet at the end of November. But the Shanghai Composite was still down 7.60% for the week on continued worries about US-China trade tensions and their impact on the domestic economy.

- South Korean stocks rose 1.51% on Friday along with the rebound in other Asia markets but dropped 4.66% on the week to close at 2,161.85 on trade worries.

- Brazil stocks fell 0.91% on Friday but still rose 0.73% on the week, as controversial Jair Bolsonaro nears a presidential election victory in the October 28 run-off. The Bovespa closed at 82,921.08.

- Indian stocks rose 2.15% on Friday, the largest one-day rise in late May 2016. That lifted the BSE 30 index into positive territory for the week, up 1.04% to 34,733.58. The BSE 30 rose for the first time in six weeks.


Alternative Assets

- Crude oil prices rose on Friday but fell for the week on signs of rising supply and worries about a global economic slowdown. The November West Texas Intermediate contract rose 0.5% on Friday to $71.34 per barrel but was down 4% on the week. The December Brent crude contract, used to price international oils, rose 0.2% on Friday to $80.43, down 4.4% on the week. Both WTI and Brent prices decreased for the first time in five weeks.

- Gold prices fell on Friday from their highest level in two months as the US and global stock markets rebounded but still posted a gain for the second week in a row. December gold fell 0.5% on Friday but rose 1.4% on the week to settle at $1,222.00 per troy ounce.


Source: Market News International, Schroders Investment Management

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