- U.S. stock markets rose modestly last week, as strong earnings data more offset renewed concerns about rising trade tensions between the U.S. and China. The Dow Jones rose 0.05% over the week to close at 25,462.58, the S&P 500 added 0.76% to end at 2,840.35, while the Nasdaq rose 0.96% to settle at 7,812.01.-
- The yield on benchmark 10-year U.S. Treasuries fell to 2.9488% last week from 2.9542% at the previous week’s close, as rising trade tensions created a modest flight to safer assets.
- U.S. nonfarm payrolls rose 157,000 in July, below the 190,000-increase expected by analysts, according data released Friday. Payrolls in May and June were revised upward by a combined 59,000. The unemployment rate slipped to 3.9% in July from the 4.0% rate posted in June.
- The Federal Reserve, as expected, held the federal funds rate steady at 1.75% to 2.00% on a 8-0 vote on Wednesday. The Fed’s policy statement upgraded the language on economic activity, now saying it has been rising at a "strong rate," rather than a "solid rate."
- President Donald Trump is considering more than doubling the proposed tariff rate on an additional $200 billion in Chinese imports to put additional pressure on China to settle the on-going trade dispute. Trump now wants to slap tariffs of 25% on those imports, above the 10% he originally proposed. On Friday, China threated to retaliate by placing 25% tariffs on $60 billion of U.S. goods, including liquefied natural gas. Low-level trade talks between the two nations to resolve the crisis have stalled, leading U.S. officials to consider applying more pressure.
- Apple Inc. on Thursday became the first company to reach a $1 trillion valuation, beating tech rivals Microsoft, Amazon and Alphabet to the mark. Its shares rose during the week after the company reported on Tuesday stronger-thanexpected fiscal third quarter revenues and profits on stronger app sales. Revenues rose 17% from the year-earlier period to $53.3 billion, with earnings rising 32% to $11.5 billion. Unit sales of its flagship iPhone rose only 1%, but smartphone revenues rose 20%, boosted by a higher average price for those sales. Apple Services revenue, which include the App Store, iCloud and Music, rose a strong 31% to $9.5 billion, though this included a one-time gain of $236 million from the resolution of lawsuits.
- Shares in electric car maker Tesla rose Wednesday after the company announced better sales and cash outflow in the second quarter and repeated its prediction that it would be earnings and cashflow positive in the third and fourth quarters. The company reported a loss of $718 million in the second quarter, more than double the $336 million shortfall in the year-earlier period. However, sales were a stronger-than-expected $4 billion in the second quarter, up 43% from the second quarter 2017. Operating cash outflow slowed to $130 million in the second quarter compared to $398 million in the first three months of the year. Including capital spending, cash outflow fell to $740 million, down from $1.06 billion in the first quarter and below analysts’ estimates.
- Facebook revealed that it had removed 32 pages and accounts from both the Facebook and Instagram platforms for what it described as a coordinated disinformation campaign to influence the mid-term elections in November. The company stopped short of blaming Russia for the campaign, though it noted that it was very similar to the disinformation practices during the 2016 presidential election that have been linked to Russia. Facebook has struggled in recent months to shore up its credibility after being heavily criticized for not doing enough to prevent fake accounts and disinformation links, with its stock price suffering as a result.
- Google has drawn up plans to relaunch a search engine in China, which would mean it would have to bow to a Chinese government requirement that it censure its content, according to media reports. However, talks between Google and the Chinese government have not gone smoothly and the company is facing heavy criticism in the U.S. for the idea. Google pulled out of China in 2010 after refusing to censure its search results.
- Consumer products giant Proctor & Gamble said Tuesday it was raising prices on many items due to higher commodity prices caused in part to the effect of trade tariffs on paper pulp imports from Canada. P&G said it began informing retailers in North America that it would raise prices by 5% for some of its most popular products, including Bounty paper towels, Charmin toilet paper and Puff tissues. It has already raised the price of its Pampers diapers by 4%.
- London stocks fell last week on rising worries about Brexit and a further increase in global trade tension. The FTSE 100 fell 0.55% over the week to finish at 7,659.10.
- The yield on 10-year Gilts rose to 1.3290% last week, up from 1.2800% at the previous week’s finish, on rising concerns about a hard Brexit.
- The Bank of England’s Monetary Policy Committee (MPC) voted unanimously for a 25-basis-point rate hike on Thursday, confounding market expectations for at least one dissenting vote in favour of no change. The vote and accompanying commentary indicate a hawkish stance by the central bank. All MPC members voted together for a hike for the first time since May 2007, resulting in the Bank Rate rising to 0.75%. This is the highest Bank Rate since February 2009 when the Bank Rate was 1.0%. All the MPC agreed that "ongoing tightening of monetary policy ... would be appropriate" if the economy evolved as projected.
- Profits at oil major BP rose sharply in the second quarter, boosted by higher prices and increased production. Underlying replacement cost profits rose to $2.8 billion, up four-fold from the $684 million in the year-earlier period. The profit result was higher than analysts’ expectations for a gain to $2.7 billion.
– Royal Bank of Scotland announced Friday its first dividend since it was bailed out during the Global Financial Crisis. The move will attract more investors to buy the company’s share and so allow the British government to continue to unload the 62.4% of the bank that it still owns. The bank reported a profit of 96 million pounds in the second quarter, despite the $4.9 billion fine it paid to settle litigation with the U.S. Department of Justice, well above expectations for a loss of more than 700 million pounds.
European Markets (ex UK)
- European stocks fell last week on weaker Eurozone GDP data and concerns about rising global trade tensions. The Eurofirst 300 fell 0.73% on the week to 1,523.93.
- The yield on benchmark 10-year Bunds rose to 0.4080% last week, up from 0.4030% at the previous week’s final bell, influenced in part on UK Brexit concerns.
- Eurozone GDP growth slowed to +0.3% quarter-on-quarter in the second quarter from+ 0.4% Q1 and was less than half the 0.7% growth rates posted in the last two quarters of 2017, Eurostat reported Tuesday. The data confirm the euro area has lost considerable economic momentum after a stellar 2017, possibly pointing to downside inflationary pressures in the medium term should the more subdued growth trend persist.
- Profits at industrial conglomerate Siemens AG rose 2% to 2.2 billion euros in its fiscal third quarter, even though revenues fell 4% to 20.5 billion euros. Its Digital Factory unit, which integrates hardware and software, showed a profit rise of 54% from a year earlier, while profits at its Power and Gas unit fell 56%. Siemens cut 7,000 jobs in the underperforming energy unit last November and it under pressure from investors to sell it.
- French banking giant Société General announced Thursday better-than-expected results in the second quarter, with net banking revenue rising to 6.5 billion euros, up 24% from a year earlier. The investment banking unit improved its results, with revenues inching up 0.5%, well above the 13% decline posted in the previous quarter.
– Dutch brewer Heineken NV announced Friday that it had agreed to a $3.1 billion partnership with the company that controls China Resources Beer Co., China’s largest brewer, to tap into the world’s fastest growing beer market. Heineken, the world’s number two brewer, will take a 40% stake in CR Beer, while China Resources Enterprise, which controls CR Beer, will buy a 0.9% stake in Heineken, resulting in a net investment by Heineken of $1.9 billion.
- Tokyo stocks, like their Asian counterparts, fell last week on rising trade tensions between the U.S. and China as well as concerns about the Bank of Japan’s move to allow slightly higher long-term interest rates. The Nikkei 225 Index fell 0.83% over the week to end at 22,525.18. Nevertheless, the Japanese stock market became the second largest stock market in the world by capitalization, overtaking China but still trailing the U.S.
- The yield on 10-year Japanese government bonds rose to 0.1100% last week from 0.1040% at the previous week’s close, rising to the highest level in 18 months as the Bank of Japan’s confirmation that it would allow slightly higher 10- year yields led to a tepid government 10-year auction on Thursday.
- The Bank of Japan tweaked its monetary policy following its meeting on Monday and Tuesday, saying it will allow a larger fluctuation in the 10-year Japanese government bond yield. The yield will now be allowed to rise up to 0.2 percentage point above the central bank’s zero percent target, double the fluctuation range allowed previously. The central bank also offered forward guidance, saying that current ultra-low interest rates would remain in place “for an extended period of time.”
- Toyota announced Friday that it posted a record profit in its fiscal first quarter but warned that U.S. trade sanctions could have a “very big” impact on results for the rest of the year. Profits rose to 657 billion yen in the April-June period, up 7.2% from a year earlier and its best first quarter result ever. But it maintained its forecast that profits would fall 15% in the fiscal year to March 2019 due to the effects of trade tensions and higher raw material costs.
Asia Pacific (ex Japan)
- The Shanghai Composite fell 4.63% for the week to 2,740.44, after the U.S. boosted trade tensions by threatening higher tariffs on an additional $200 billion of Chinese goods.
- Hong Kong stocks also fell on the week due to rising trade tensions. The Hang Seng Index fell 3.92% over the week to close at 27,676.32.
- Seoul stocks tracked Asian markets lower last week, with the Kospi falling 0.32% to 2,287.68. Samsung’s results also weighed on the market, with the industrial conglomerate reporting its profits dropped in the second quarter for the first time in seven quarters on lackluster smartphone sales, which account for 80% of its operating profit.
- Brazil stocks rose strongly last week after the central bank kept its main interest unchanged at a record low. The Bovespa climbed 1.96% over the week to close at 81,434.98.
- Mexican stocks fell last week after the country’s central bank left interest rates unchanged but lowered its growth forecast. The IPC fell 0.69% over the week to end at 49,302.57.-
- Russian stocks fell last week as oil prices declined further and as U.S. lawmakers considered broadening economic sanctions against Moscow. The RSTI fell 0.58% over the week to settle at 1,145.08.
- Crude oil prices fell Friday and dropped for the fourth week in the last five on signs of rising production. The September West Texas Intermediate contract fell 0.7% on Friday to settle at $68.49 per barrel and was down 0.3% on the week. The Weekly market watch 5 October Brent crude contract, used to price international oils, fell 0.3% on Friday and 2.1% over the week to close at $73.21.
- Gold prices rose Friday but fell for the fourth straight week last week, as the dollar’s strength continued to weigh on traders’ willingness to purchase commodities priced in the currency. December gold rose 0.3% on Friday but fell 0.8% over the week to settle at $1,223.20 per troy ounce.
Source: Market News International, Schroder Investment Management