Weekly market overview - 31/08/18

United States

- U.S. stock markets were mixed Friday, as trade concerns weighed on the market. U.S. President Donald Trump said he wanted to go ahead and impose 25% tariffs on $200 billion in Chinese imports, while negotiations between the U.S. and Canada to reach a trade deal and rescue the North American Free Trade Agreement produced no result, though the negotiators agreed to continue talking this week. The Dow Jones Industrial Average fell 0.09% on Friday but the index still posted a 0.68% gain for the week to close at 25,964.82. The S&P 500 was virtually unchanged Friday (+0.01%)% on Friday and was up 0.93% on the week to end at 2,901.52. The Nasdaq rose 0.26% on Friday and posted a 2.06% gain on the week to settle at 8,109.54. For the month of August, the Dow rose 2.2%, the S&P 500 gained 3% and the Nasdaq increased 5.7%

- The yield on benchmark 10-year U.S. Treasuries rose to 2.8604% last Friday from 2.8098% at the previous week’s close, as rising trade tensions prompted a flight to safety.

- Second quarter GDP growth was revised up to a 4.2% annual rate from the 4.1% pace in the advance estimate, compared with expectations for a downward revision to 4.0%, data released Wednesday by the Bureau of Economic Analysis showed

- Trade talks between the United States and Canada broke up Friday with no deal on a revision of the North American Free Trade Agreement (NAFTA), though both sides vowed to continue negotiations this week. Last Monday, the United States and Mexico announced a new bilateral trade deal that would revise the terms of NAFTA, including the amount of domestic content necessary to allow tariff-free auto imports into the U.S. The deal would leave in place tariff-free food imports and would be reviewed in six years, rather than expire in five years as the U.S. initially demanded. Canada was left out of the deal, raising questions about the future of NAFTA. Even though US President Donald Trump vowed to seek Congressional approval of the Mexico deal, Congressional leaders warned they would not approve a deal that didn’t include America’s northern neighbor and preserve NAFTA.

- The European Union is prepared to scrap all its import tariffs on U.S. vehicles if the U.S. does the same with European vehicle imports, EU Trade Commissioner Cecilia Malmstrom said Thursday. A zero tariffs agreement would be part of a trade deal between the U.S. and EU currently under negotiation.

- Coca-Cola will buy the Costa Coffee chain from UK leisure group Whitbread for 3.9 billion pounds, Whitbread announced Friday. Whitbread’s shares rose nearly 20% on the news. Coca-Cola, the world’s largest drinks company, now has a presence in the coffee brewing space and will take on Starbucks and Nestle in that increasingly crowded market.

- Stock prices of U.S. automakers rose Monday after the U.S. and Mexico announced a bilateral trade agreement that increased the amount of U.S.-made content required in autos imported from Mexico to avoid tariffs. Shares in Fiat Chrysler, GM and Ford all rose on the news.


United Kingdom

- London stocks fell last week on rising global trade tensions and continued worries about Brexit. The FTSE 100 fell 1.11% on Friday and 1.91% on the week to finish at 7,432.42.

- European Union chief Brexit negotiator Michael Barnier said Wednesday the EU is prepared to offer the UK an unprecedented close relationship after the UK leaves the bloc next year as long as the deal does not weaken the single market. Negotiations on the post-Brexit relationship continue, with no resolution in sight. Businesses are increasingly anxious about the possibility of a hard Brexit, with the pace of companies moving some operations out of the UK picking up recently.

- The yield on 10-year Gilts rose sharply to 1.4270% last week from 1.2780% the previous week after the UK Treasury was forced to deny a rumor that the government had asked Bank of England Governor Mark Carney to stay on another year. A flight to quality due to rising global trade tensions also contributed to the increase during the week.


European

- European stocks fell last week on concerns about rising global trade tensions. The Eurofirst 300 fell 0.86% on Friday, pushing the index down 0.43% on the week to 1,494.26.

- The yield on benchmark 10-year Bunds fell to 0.3260% at the end of last week from 0.3450% at the previous week’s final bell, as concerns about the U.S.-Turkey political crisis eased further.

- Eurozone economic sentiment slipped in August for the fifth straight month, Eurostat reported Thursday. The overall sentiment index fell to 111.6 from 112.1in July. Consumer sentiment dropped sharply during the month, while industry and services sentiment also fell. Gains in retail and construction sentiment partly offset those losses.

- Shares in German warehouse retailer Metro rose on Monday after reports that Czech-Slovak investor EP had interest in a buyout of the firm. Ceconomy said Monday was in talks to sell about a 9% share in Metro to EP. Last week, EP said it would buy a 7.3% share in Metro from German holding company Haniel and had purchased an option to buy Haniel’s remaining 15.2% share in Metro.

- The merger of Germany two largest listed banks, Deutsche Bank and Commerzbank, is considered likely among members of the Frankfurt banking community, the Financial Times reported Monday. Before a merger could take place, Deutsche must finish its integration of Postbank and then restructure its troubled investment banking unit.

- Shares in Swiss asset manager GAM fell as much as 10% on Thursday after Credit Suisse cut its price target in half due to trouble at its absolute return bond funds. Redemptions in the funds rose sharply following the removal of the fund manager in late July.

Japan

- Tokyo stocks fell 0.02% on Friday on trade concerns, but the Nikkei 225 Index still posted a healthy gain of 1.17% for the week to end at 22,865.15.

- The yield on 10-year Japanese government bonds rose to 0.1070% at the end of last week from 0.1010% at the previous week’s close as the Bank of Japan continued to allow slightly higher yields.

- Toyota announced Tuesday that it would invest $500 million in ride-hailing company Uber in a collaboration on selfdriving technology. The deal in preferred stock values Uber at $76 billion and is a boost to its autonomous driving program after one of its self-driving vehicles struck and killed a pedestrian in March.


Asia Pacific and Emerging Markets

- The Shanghai Composite fell 0.46% Friday after President Trump indicated he would move ahead of tariffs on an additional $200 billion of Chinese imports. Friday’s drop pulled the index down 0.15% for the week to close at 2,725.25, despite better-than-expected manufacturing and services sentiment data. The index fell 5.3% for the month.

- South Korean stocks rose 0.67% on Friday and 1.29% on the week to close at 2,322.88, on signs of an improvement in the relationship with China.

- Brazil stocks rose 0.36% on Friday, allowing for a 0.54% gain for the week, as data showed the Brazilian economy managed to expand by 0.2% in the second quarter despite a crippling truckers’ strike. The Bovespa closed at 76,677.5

- Russian stocks rose 1.56% on Friday in a continued positive reaction to the Russian government backed down on its plan for a large new tax on industrial groups. Friday’s gain helped push up the RSTI by 2.61% over the week to settle at 1,092.29.

- Indian stocks fell 0.12% on Friday on trade worries, as drops in energy and financial stocks offset gains in tech and healthcare. The BSE 30 still ended 1.03% higher for the week at 38,645.07, as India again posted strong growth above 8%. The index was up 2.8% in August.

Alternative Investments

- Crude oil prices fell on Friday as rising global trade tensions raised worries about the outlook for demand but rose for the week on expectations of lower supply due to the U.S. sanctions on Iran. The October West Texas Intermediate contract fell 0.6% on Friday to settle at $69.80 per barrel but was up 1.6% on the week. On Thursday, WTI had closed above $70 for the first time since July 20. The October Brent crude contract, used to price international oils, fell 0.5% on Friday but rose 2.1% over the week to close at $77.42. WTI was up 3.2% and Brent 4.3% in August.

- Gold prices rose Friday but fell for the week and suffered its fifth straight monthly decline in August, the longest downtrend in five years. December gold rose 0.1% on Friday but fell 0.5% over the week to settle at $1,206.70 per troy ounce. The price of the precious metal fell 2.2% in August.

 

Source: Market News International, Schroders Investment Management

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