Weekly Market Oveview - 07/09/18

United States

- U.S. stock markets fell Friday on concerns over additional U.S. tariffs on Chinese imports and after strong U.S. jobs and wages data suggested the Federal Reserve would maintain its pace of raising interest rates. The Dow Jones Industrial Average fell 0.31% on Friday, pushing the index down 0.19% for the week to close at 25,916.54. The S&P 500 dropped 0.22% on Friday and 1.03% on the week to end at 2,871.68. The Nasdaq fell 0.25% on Friday and posted a 2.55% decline on the week, its largest weekly drop since March, to settle at 7,902.54.

- The yield on benchmark 10-year U.S. Treasuries rose to 2.9388% last Friday from 2.8604% at the previous week’s close, as rising trade tensions prompted a flight to safety.

- The August employment report released Friday was a bit stronger than expected, with nonfarm payrolls up 201,000 compared with the 195,000-increase expected by analysts. But the August rise followed a net downward revision of 50,000 in the previous two months, data released by the Bureau of Labor Statistics showed. The unemployment rate was unchanged in August at 3.9%, against expectations of a decline to 3.8%. Average hourly earnings rose 0.4% in August after an unrevised 0.3% gain in July. Hourly earnings now stand 2.9% above its year ago level, up from 2.7% in July. Even with this uptick, wage growth is still lags levels usually seen with this tight of a labor market. The overall average workweek was unchanged from 34.5 hours in the previous month. The combination of earnings and hours worked should be positive factors for personal income growth in August.

- US President Donald Trump said Friday that the US would impose tariffs on an additional $200 billion in Chinese imports “very soon” unless China makes trade concessions and was ready to impose tariffs on an additional $267 billion in Chinese goods – in effect, all remaining Chinese imports -- “on short notice” if the Chinese retaliate, as they have promised to do. The comment period on the proposed $200 billion tariff package ended Thursday, with many U.S. businesses warning about the impact of higher prices on U.S. consumers and on the U.S. economy.

- Trade talks between the United States and Canada continued last week, though no deal on a revision of the North American Free Trade Agreement (NAFTA) was reached. Trump said that the negotiations were “moving along” but did not predict the outcome. On August 27, the United States and Mexico announced a new bilateral trade deal that would revise the terms of NAFTA. Canada was left out of that deal, raising questions about the future of trilateral deal. Even though Trump vowed to seek Congressional approval of the Mexico deal on its own, Congressional leaders warned they would not approve a deal that didn’t include America’s northern neighbor and preserve NAFTA.

- Shares in electric carmaker Tesla fell as much as 10% on Friday after two top executives at the company said they were leaving and chief executive Elon Musk was shown appearing to smoke marijuana during a live-streamed interview. The company’s new chief financial officer announced he was leaving less than a month after taking the job, while the head of human resources said she would not return from a leave of absence. Their departures following that the company’s chief communications officer, whose last day was Friday. A growing number of analysts suggested the continued upheaval required a change in the company’s leadership.

- Shares in Amazon rose to $2,050.50 on Tuesday, valuing the company at more than $1 trillion. Amazon is the second company with a $1 trillion valuation, following Apple, which reached the plateau last month. Microsoft and Google parent Alphabet are considered most likely to be the next to join the “four comma club.”

 

United Kingdom

- London stocks fell last week on rising global trade tensions and continued worries about Brexit. The FTSE 100 fell 0.56% on Friday and 2.08% on the week to finish at 7,277.70.

- Britain’s GMB union, on the nation’s biggest with 600,000 members, called on Tuesday for a new referendum on Brexit, saying that promises made during the original referendum campaign had not been kept. With less than seven months to go before the UK is due to leave the European Union in late March next year, London and Brussels have not yet worked out an agreement on how their relationship would work after Brexit. The government has started preparations for a no deal Brexit, which businesses have warned would lead to economic chaos. Markets were cheered Tuesday when Bank of England Governor Mark Carney said he was talking to the UK government about extending his term so he could oversee the Brexit transition

- The yield on 10-year Gilts rose to 1.4590% at the end of last week from 1.4270% the previous week on concerns over rising trade tensions and Brexit.

- UK manufacturing sector activity growth was significantly slower in August, the latest IHS Markit/CIPS Purchasing Managers' Index (PMI) showed. The headline manufacturing PMI dropped to a 25-month low of 52.8 in August, down from a revised reading of 53.8 in July (initially 54.0).

- British Airways admitted late Thursday it had suffered a major breach of its customer financial data, affecting some 380,000 people. The attack is the first since a broad new data protection law went into effect at the end of May, which gives regulators the ability to fine companies for breaches of their computer systems. BA notified authorities on Thursday night and its customers on Friday of the breach. Shares in BA owner International Consolidated Airlines Group (IAG) fell sharply in early trading Friday on the news.

 

Europe

- European stocks fell last week on concerns about rising global trade tensions. The Eurofirst 300 rose 0.05% on Friday, but the index was still down 2.25% on the week to 1,460.67
- The yield on benchmark 10-year Bunds rose to 0.3870% last week from 0.3260% at the previous week’s final bell on rising trade concerns.
- Economic activity in the euro area rose 0.4% in the second quarter of 2018, unchanged on the flash reading and in line with market expectations, according to data published by Eurostat Friday

- Commerzbank, Germany’s second largest lender, was officially dropped from the Dax stock index of the nation’s 30 leading listed companies, German stock exchange company Deutsche Boerse announced Wednesday. Commerzbank had been part of the index since it began in 1988. It will be replaced by Wirecard, a payments service provider that boasts a market capitalization twice that of Commerzbank. Wirecard’s stock price has doubled so far this year on faster revenue growth. Deutsche Bank, Germany’s biggest lender, was dropped from the Euro Stoxx 50 index for the first time since its inception in 1998. However, rumors continued to swirl in Frankfurt financial circles that Germany’s two largest banks would soon merge.

- Shares in pharmaceutical and chemicals firm Bayer AG fell Wednesday after its warned that full-year revenues and earnings would be lower than expected to due to delays in its takeover of Monsanto. Bayer shares fell to a five-year low last month after a California court ruling held the company liable for cancer found in workers who used Monsanto weed killers, exposing it to potentially billions of dollars in claims.

- Unions threatened Irish discount airline Ryanair with a new round of strikes, as the carrier’s labor troubles this summer continued. Unions representing cabin crew in Italy, Portugal, Belgium, Spain and the Netherlands said they would call a strike no later than September 13.


Japan

- The yield on 10-year Japanese government bonds rose to 0.1130% at the end of last week from 0.1070% at the previous week’s close as the Bank of Japan continued to allow slightly higher yields.
-  Bank of Japan Governor Haruhiko Kuroda said the BOJ will not raise interest rates for an extended period, confirming the bank's latest policy stance, the Yomiuri Shimbun reported on Sep. 1
- Tokyo stocks fell 0.80% on Friday, down for the sixth consecutive trading day, in reaction to the Hokkaido earthquake and rising trade concerns. The Nikkei 225 Index dropped 2.44% for the week to end at 22,307.06.
- A major earthquake struck Hokkaido early Thursday, cutting power and shutting industrial production in much of the region. More than half the region was still without power late Friday. The lack of power is a major risk to the dairy industry, with Hokkaido accounting for more than half of the nation’s milk production. Toyota suspended some production due to the effects on its supply chains.


Asia Pacific & Emerging Markets

- The Shanghai Composite rose 0.40% Friday but still fell 0.84% for the week to close at 2,702.30 on concerns about additional US trade sanctions and further worries about the tech sector.
- Hong Kong stocks were virtually unchanged Friday (-0.01%) as the market waited for new information on trade and the tech sector. The Hang Seng Index fell 3.28% over the week to close at 26,973.47.
- Brazil stocks rose 1.76% on Friday but fell 0.34% on the week, as pressure on the real from Argentina’s currency crisis weighed on the market. The Bovespa closed at 76,416.02.
- Russian stocks rose 0.37% on Friday as the ruble recovered from the 30-month low posted on Thursday amid prospects for more U.S. economic sanctions. The RSTI still fell 3.82% over the week to settle at 1,050.51.

 

Alternative Assets

- Crude oil prices fell on the week on worries that rising global trade tensions would hit demand and signs of rising seasonal inventories. The October West Texas Intermediate contract fell 2 cents on Friday to $67.75 per barrel and was down 2.9% on the week, the first loss in three weeks. The November Brent crude contract, used to price international oils, rose 0.4% on Friday but fell 1% on the week to close at $76.83.

- Gold prices fell on Friday and on the week as strong U.S. jobs data boosted the dollar and supported further Federal Reserve interest rate hikes this year. December gold fell 0.3% on Friday and fell 0.5% over the week to settle at $1,200.40 per troy ounce.

Source: Market News International, Schroders Investment Management

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