Weekly Market Update: Global stocks rally with US stocks higher after Fed’s comments
Mon 03 Dec 2018
Last week US equities had already seen a solid rebound, up over 2% for the week in US Dollar terms, when on Wednesday Jerome Powell’s apparent U-turn on interest rates, stating that “they remain just below the broad range of estimates of the level that would be neutral for the economy” – somewhat different from his October comment that rates were “a long way from neutral’’ – immediately sent stocks over 1% higher. They continued to rally, closing the week up +4.9% in USD terms and up +5.4% in Sterling terms. Equities were up across the board, with Emerging Market and Japanese equities positing strong returns of +3.1% and +2.7% respectively, with European equities positing a solid +1.6%. UK equities lagged, returning +0.4%, despite Sterling falling -0.5% vs USD and -0.3% vs EUR, as the slim likelihood of Theresa May’s deal passing through Parliament clouds the future of Brexit. US 10Y Treasury yields finished the week below 3% at 2.988% as markets reacted to Powell’s comments, pricing in only one rate hike in 2019. Gold was flat while Oil gained +1.4% in USD terms.
After a little more than two months of general malaise, markets now find themselves in need of positive catalysts. The first such catalyst came last week, with what investors perceived as Fed Chair Jay Powell’s hint at the possibility of an end to rate hikes. Mr. Powell’s statement was actually much more succinct and technical, but the going assumption is that he relented in the face of criticism from the President and that it is the Fed which will adjust to market expectations of 1 rate hike for the next year, rather than the market to the Fed’s guidance for 3-4 hikes. We would be more guarded and we believe that given the current data on inflation, growth and employment not much has changed for the Fed’s case. Another positive catalyst is news of a ceasefire in trade wars between the US and China, which sent equity futures higher. Still, the reaction is more indicative of the market’s need for positivity rather than solid analysis on a subject as volatile as Presidential tweets. All of last week’s positive catalysts are temporary. Sentiment is fickle and almost impossible to predict over the short term. Long term investors should instead focus on fundamentals, those of growing earnings and peak margins against a backdrop of slower and tighter global economic conditions.
David Baker, CIO
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Global stocks were relatively unchanged in Sterling terms (down -0.7% in USD terms) last week amid investors’ skepticism around supply chain issues hampering growth, elevated valuations and future monetary policy. Japanese stocks posted gains for a consecutive week, rising by +1.1%, as campaigning began for the next president of Japan’s ruling LDP. UK stocks fell by -0.9% amid higher than expected inflation, while US stocks were up +0.2% driven by a strengthened US Dollar. Globally, all sectors exhibited losses apart from energy stocks which posted solid gains of +2.8%. The US 10Y Treasury yield was up 2.1bps finishing the week at 1.363%, while the UK 10Y yield was up 8.9bps reaching 0.848%. Sterling fell against the US Dollar by -0.7% and remained flat against the Euro. In US Dollar terms gold lost -1.2%, while oil was up by +4.0%.
Stock indices in most developed market regions rebounded strongly after Monday’s acute sell off amid fears of Evergrande’s default - global stocks were up +0.7% in GBP terms. EU stocks were up +1.7% despite business activity losing steam, while US stocks rose +1.0% after recording their biggest daily drop since May 12th, on Monday. UK stocks rose by +1.0% as the BoE announced that rates will be unchanged; however holding a more hawkish stance. Globally, Energy stocks continued their upward trend posting solid gains of +4.0% followed by financials, IT and consumer discretionary. The US 10Y Treasury yield was up 8.9bps finishing the week at 1.453%, while the UK 10Y yield was up 7.4bps reaching 0.922%. Sterling fell by -0.4% and -0.3% against the USD and the Euro respectively. In US Dollar terms gold rose by +0.2%, while oil was up by +3.4%.
Equities in most major markets pulled back amid inflation worries, persistent supply side issues and more contractionary anticipated monetary policy - global stocks were down -1.6% in GBP terms. US stocks were down -1.2% as uncertainty loomed around the federal debt ceiling and the approval of the USD 1 trillion infrastructure bill. EU stocks were down -1.2% amid higher than expected inflation while UK stocks were down -0.3% despite an upward revision of latest GDP figures. Globally, Energy stocks continued their upward trend for another week in a row posting solid gains of +4.9%, with the rest of the sectors pulling back. The US 10Y Treasury yield was up 1.2bps finishing the week at 1.465%, while the UK 10Y yield was up 8.2bps reaching 1.00%. Sterling fell by -1.0% against the USD. In USD terms gold rose by +1.6%, while oil was up by +3.5%.
Equities in most major markets posted gains last week with global stocks up +1.1% in Sterling terms, amid some improved economic figures. US stocks were up +0.8% as the earnings season kicked off strongly with major banks beating earnings expectations. EU stocks were up +1.6% despite a contraction in the industrial sector while UK stocks were up +2.0% amid strong macroeconomic data showing output growth during August. Globally, almost all sectors posted gains with cyclicals outperforming relatively versus more defensive stocks. The US 10Y Treasury yield was up 3.8bps finishing the week at 1.574%, while the UK 10Y yield was up 5.6bps reaching 1.105%. Sterling rose by +1.0% against the US Dollar. In USD terms gold pulled back by -0.4%, while oil was up by +2.5% reaching $82 per barrel.
Equities in most major markets posted gains last week with global stocks up +1.4% in Sterling terms, amid stronger investor sentiment. US stocks were up +1.7% as positive earnings surprises continued for a second week in a row. EU stocks were up +1.2% despite heightened concerns that a rate hike could come sooner than expected, while UK stocks were down -0.4% as the latest inflation readings remained above the BoE’s 2% target. Globally, most sectors posted gains with healthcare and utilities being the best performing, while materials and telecoms underperformed. The US 10Y Treasury yield was up 6.2bps finishing the week at 1.632%, while the UK 10Y yield was up 3.9bps reaching 1.145%. Sterling remained flat against the US Dollar. In US Dollar terms gold was up +1.4%, while oil was up +2.9% reaching $84 per barrel.
Equities in most major markets posted gains last week with global stocks up +1.4% in Sterling terms, amid stronger investor sentiment. US stocks were up +2.0% as positive earnings surprises continued during the busiest week of the earnings season. EU stocks were up +1.2% amid strong corporate earnings, while UK stocks were up +0.5% as the OBR revised its outlook for the UK economy upwards. Globally, consumer discretionary and IT were the best performing sectors while financials and energy were the worst performing. The US 10Y Treasury yield was down 8bps finishing the week at 1.552%, while the UK 10Y yield was down 11.1bps reaching 1.034%. Sterling was down -0.5% against the US Dollar. In US Dollar terms gold was up +0.1%, while oil was down -0.6% to $84.2 per barrel.
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