Weekly market overview

US markets

• U.S. markets were mixed last week, with a strong U.S. second-quarter GDP print helping propel the Dow Jones and the S&P 500 higher. This is despite fall in the Nasdaq following disappointing results and guidance from the likes of Facebook and Twitter. The Dow Jones rose 1.57% over the week to close at 25,451.06, the S&P 500 added 0.61% to end at 2,818.82, while the Nasdaq fell 1.06% to settle at 7,737.42

• The yield on benchmark 10-year U.S. Treasuries rose to 2.9542% last week, up from 2.8931% at the previous week’s close, as the second-quarter GDP print reinforced expectations that the central bank will go ahead with its schedule of raising interest rates each quarter. U.S. Treasuries also sold off on the basis that the Bank of Japan is positioning to wind down its easing program

• Twitter’s shares dropped sharply Friday after the messaging service said its user numbers fell in the second quarter as a result of new European privacy rules and efforts to purge zombie accounts. Average monthly active users clocked 335 million in the second quarter, down by 1 million on the first three months, though Twitter said the drive had helped reduce reports of abuse by 8 percent. Earnings per share came in even on the year earlier period at 17 cents, while improved traction with advertisers helped push revenue to $711 million from $696.2 million a year earlier. –

• Amazon’s quarterly profits dazzled Wall Street Thursday as the company reported net income of $2.5 billion for the three months to end-June, putting 40 cents on its earnings per share from the year earlier period to $5.07, which was more than double analysts’ estimates. Revenue was up 39% to $52.9 billion, slightly below estimates but within guidance, as the company said that moves to allow more sales by third-party vendors on its website lifted its operating margin, as did growth in Amazon Web Services, which is now Amazon’s most profitable business.

• Facebook’s stock took a battering after the close on Wednesday after the social network issued what analysts described as “nightmare” guidance that suggested the company is either trying to massage public opinion in the wake of a series of privacy scandals or faces troubling issues with its core services. About $120 billion was wiped off Facebook’s market capitalization after its second-quarter results missed expectations on revenue and showed slowing user growth, while reporting that net income rose to $1.74 per share from $1.32 per share in the year-earlier period. Sales rose 41.9% on year to $13.04 billion, as user growth flattened in the U.S. and declined in Europe, largely as a result of the impact of the General Data Protection Regulation, but it was Chief Financial Officer David Wehner’s forecast that revenue would continue to decelerate in the second half that tanked the stock

UK market

• London stocks ticked higher last week, with sentiment supported by the strong U.S. GDP data and some upbeat earnings releases. The FTSE 100 added 0.29% over the week to finish at 7,701.31.

• The yield on 10-year Gilts rose to 1.28% last week, up from 1.232% at the previous week’s finish, in line with the easing of concerns over trade frictions between the U.S. and its partners and as investors opted for risk-on plays in light of solid earnings and China’s announcement that it will spend to prop up its economy.

• BP said Thursday that it had agreed to pay $10.5 billion for BHP’s southern U.S. shale assets, as BHP bows to activist shareholder pressure to exit the sector having acquired the assets in Texas and Louisiana during the height of the commodities boom. BP said the acquisition would add 190,000 barrels of oil equivalent to its daily output and some 4.6 billion barrels of reserves. BP said it expects the increased cashflow from the deal to allow it to increase its dividend, as its net debt was currently at the lower end of its target range of $10-15 billion.

• Royal Dutch Shell announced Thursday a long-awaited $25 billion share buyback, marking a turning point following the oil industry downturn that saw Shell offload almost $30 billion in assets and double-down on controlling costs. Shell said it would buy up to $2 billion of A or B shares every quarter provided oil prices hold steady and it continues to keep a lid on its debt, indications that the company’s balance sheet has returned to health. However, shares fell after the oil major said second-quarter earnings rose 30% on year to $4.7 billion, missing estimates for $5.9 billion. Shell’s still rosy results reflected an industry-wide upturn on the back of higher oil prices, reflected in Total and Equinor both reporting profits up 40% in the same period, with ConocoPhillips booking adjusted earnings that were five times higher than last year.

Europe (ex. UK) market

• European stocks rose last week, touching fresh six-week highs on solid corporate earnings and amid signs that the U.S. and European Union will find a way out of their trade war thicket – optimism that benefitted automakers in particular. U.S. President Donald Trump and European Union officials struck a deal on Wednesday that while light on detail committed both sides to working towards zero tariffs, barriers and subsidies. The Eurofirst 300 was 1.62% higher for the week at 1,535.13.

• The yield on benchmark 10-year Bunds rose to 0.403% last week, up from 0.37% at the previous week’s final bell, as German government debt tracked Japanese bond yields in spiking higher on expectations that the Bank of Japan (BOJ) is preparing to close its massive quantitative easing program.

• As expected, the European Central Bank (ECB) left its policy rate on hold at its July meeting Thursday, but the bank reaffirmed that it will bring about an end to its quantitative easing program at the end of 2018. The ECB kept its base deposit rate at -0.4% and easing at EUR30 billion per month, with that amount set to be halved come September. In a statement following the meeting, the bank hinted at interest rate rises ahead: "The Governing Council expects the key ECB interest rates to remain at their present levels at least through the summer of 2019," it said. ECB President Mario Draghi added: “While uncertainties, notably related to the global trade environment, remain prominent, the information available since our last monetary policy meeting indicates that the euro area economy is proceeding along a solid and broad-based growth path. The underlying strength of the economy confirms our confidence that the sustained convergence of inflation to our aim will continue in the period ahead and will be maintained even after a gradual winding down of our net asset purchases

• UBS tracked global banks by reporting solid second-quarter pre-tax profit Tuesday, up 12% on year to CHF1.68 billion, led by its investment bank, where performance tempered outflows of CHF1.2 billion from its wealth management unit. The investment bank reported pre-tax profit of CHF569 million, beating the year earlier print of CHF451 million, aided by foreign exchange and fixed income trading. Much of the wealth outflows came from the U.S., where UBS said that the CHF9 billion in exiting money was related to seasonal tax outflows and a corporate employee share program. UBS said it was confident on meeting its strategic and financial targets despite the maelstrom over Brexit and other geopolitical headwinds

• Opel-Vauxhall said Tuesday that first half profit reached EUR502 million, turning around a EUR179 million loss in the year earlier period, marking the first time the dual-branded company had emerged from the red since 1999. The results offer vindication for parent PSA, which acquired the company from General Motors in summer 2016. PSA reported that its own first-half operating profit surged 41% on year to EUR3 billion, buoyed by strong performance among its other brands – Peugeot, Citroën and DS – as customers opted for higher margin models and option


• Tokyo stocks edge higher last week, lifted by the U.S.-EU progress on trade but held in check by concerns that the Bank of Japan will announce a major change to its quantitative easing program at its interest rate review meeting next week. The Nikkei 225 Index put on 0.07% over the week to end at 22,712.75.

• The yield on 10-year Japanese government bonds rose to 0.104% last week, up from 0.035% at the previous week’s close, leaping the most in almost two years on news that the BOJ is engaged in preliminary talks over changing its monetary policy.

• Nissan reported Thursday that second-quarter net profit fell 14.1% on year to Y115.8 billion driven by rising material costs and a firmer yen. Sales in China rose but declined in North America and Europe. Corporate Vice President Joji Tagawa said that the ongoing trade war between the U.S. and its trading partners had so far had a minimal impact on Nissan’s operations, adding that the company has made efforts to localize its global production in order to sidestep trade problems. Nissan maintained its annual net profit forecast at Y500 billion.

Asia Pacific (ex Japan)

• Shanghai stocks rose last week, led by lenders after the banking regulator took a soft approach to asset management product rules to give banks some breathing space as the economy slows. The Shanghai Composite was up 1.57% for the week at 2,873.59.

• Hong Kong stocks moved higher last week, lifted by financials due to the less stringent shadow banking rules in China and by news that China’s State Council plans to inject $73.6 billion into the economy to help businesses weather the fallout of the trade war with the U.S, on top of almost $200 billion that will be ploughed into local government infrastructure projects. The Hang Seng Index rose 2.05% over the week to close at 28,804.28.

Emerging Markets

• Brazil stocks rose last week, supported by financials after a poll showed that the center-left populist Ciro Gomes registered just 8% of voter intentions ahead of October’s presidential election. The Bovespa climbed 1.65% over the week to close at 79,866.10. Weekly market watch
• Mexican stocks also moved higher, propelled by optimism over the Chinese government’s fiscal stimulus plans, which are expected to benefit Mexico’s commodity exporters. The IPC advanced 1.5% over the week to end at 49,643.94.

• Indian stocks rose to record highs last week, as investors piled into Indian equities on the back of strong corporate earnings and the assumption that India is relatively insulated from the fallout of the ongoing global trade tensions. The BSE 30 was 2.3% higher for the week at 37,336.85. –
• Russian stocks rose last week in line with higher energy prices, overcoming indications that U.S. lawmakers are seeking to broaden sanctions against Moscow. The RSTI increased 3.33% over the week to settle at 1,151.74.


• Crude oil prices rose last week, marking the first weekly gain in a month for both primary contracts, after Saudi Arabia was forced to halt shipments via a Red Sea trade lane as a result of attacks by Houthi rebels on two of its oil tankers. However, prices were held in check after Russia’s energy minister, Alexander Novak said that his country would not rule out increasing production in excess of 1 million barrels per day. Benchmark U.S. added 0.6% over the week to settle at $68.69 per barrel in New York. Brent crude, used to price international oils, rose 1.7% over the week to close at $74.29.

• Gold prices fell for a third straight week last week, as the dollar’s strength continued to weigh on traders’ willingness to purchase commodities priced in the currency. August gold fell 0.7% over the week to settle at $1,223 per troy ounce.

Source: Market News International, Schroder Investment Management

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