Global Markets Review
Global Equity Markets in Review
§ Strong earnings aids Wall Street in maintaining its uptrend as most of the major stock indices edge higher
§ A dovish ECB, corporate earnings and political tension (in Spain) drive European markets
§ Political commotion weighs on Australia, while Japan, India and China surge higher
Wall Street indices reach record highs
The US stock market displayed a see-saw movement amid choppy trading during the week, which was busy on results, with 180 out of the S&P500 constituents announcing their Q3 2017 results. Investors rewarded Amazon, Alphabet, Microsoft, Intel, GM, Caterpillar and 3M following their forecast-beating third-quarter financial results. Twitter grabbed investor attention after the social media company stated it could turn profitable in the fourth quarter of 2017, supported by new revenue sources and cost reduction. Telecom stocks struggled after AT&T posted a bigger-than-expected decline in sales in its result. General Electric tumbled after numerous brokerages downgraded the company.
Although, NASDAQ was dragged down by weakness in the biotechnology sector in the early part of the week, the technology-heavy index recorded a weekly gain of 1.1%, helped by a surge in Amazon, Alphabet and Microsoft following their better-than-expected earnings. The Dow Jones Industrial Average gained 0.5% and S&P 500 added 0.2% during the week.
Investors cautiously observed the Trump administration’s progress on promised tax reforms. The House of Representatives managed to clear a budget blueprint, taking a step towards the President’s goal of a tax overhaul. The week’s economic data were also largely favourable; Housing market data was encouraging as new home sales surged 18.9% to an annualised rate of 667,000 in September. US Q3 2017 GDP growth (annualised) of 3%, at same level as Q2 in spite of hurricanes Harvey and Irma in August and September, beat estimates and expectations.
Most of the major European stock markets edge higher
The European markets treaded water for the most part of the week as investors were cautious ahead of the ECB’s monetary policy meeting scheduled on Thursday. The ECB took its first cautious step towards monetary policy normalisation, unveiling its plan to reduce the size of the asset purchase programme starting next year. The central bank will cut its monthly asset purchases to €30 billion from €60 billion currently starting January 2018. It is likely to continue with its asset purchase programme until September 2018 or beyond, if necessary, or till policymakers see a sustained adjustment in the path of inflation. Further, even in the modified policy, near zero policy rates for a time beyond end of asset purchase program are a strong prospect, thereby assuring the markets of Central bank intervention. The European stock market edged higher following the ECB’s dovish stance on monetary tightening. Moreover, weakness in the euro following the ECB’s monetary policy meeting boosted the stocks of export-focused companies. Also, the uptrend in the information technology services continued as Capgemini, Atos and Sopra Steria all delivered healthy results.
The pan-European Stoxx 600 gained 1.4% during the week. Germany’s DAX 1.7%, France’s CAC 2.3%, whereas the UK’s FTSE 100 finished edged lower (down 0.2%). Continued political chaos in Spain weighed on the country’s stock market as the benchmark IBEX index closed 0.2% lower.
Most Asia-Pacific markets (except Australia) surge
Australian equities ended the week in the negative territory after the government lost its one-seat majority after the court disqualified deputy PM Barnaby Joyce for dual citizenship (New Zealand citizenship by descent due to his father) as per Section 44 of the Constitution. Political turmoil weighed on the Australian stock market as it underperformed Asia-Pacific peers. Financials posted weak performances, while miners were volatile during the week. The benchmark S&P/ASX 200 finished flat with a negative bias (0.1% low).
Indian stock market recorded a stellar performance over the last week as public-sector banks (PSBs) and infrastructure sector stocks drove the benchmark indices to new highs. The government unveiled its plan to invest INR 6.92 trillion in the infrastructure sector over the next five years, and a massive recapitalisation package worth INR 2.11 trillion for PSBs. Nifty gained 1.7% and the Sensex 1.8% over the week.
Japanese stocks rallied after Prime Minister Shinzo Abe’s ruling Liberal Democratic Party achieved a landslide victory in the elections over the previous weekend, assuring markets of continuation in Abenomics. A stable political outlook, strengthening domestic economy, robust global economic outlook and healthy corporate earnings were the key catalysts behind the recent rally in Japan’s financial market. Financial sector stocks and export-focused stocks outperformed the broader market during the week. The Nikkei Index reached a 21-year high as the benchmark index surged 2.6% during the week.
Investors reacted positively after the ruling Communist Party of China voted to endorse Xi Jinping as president for a second five-year term. Jinping’s “Belt and Road” project was also included in the Communist Party’s constitution. Consumer companies rallied after the liquor baron Kweichow Moutai posted robust growth in profits. The Chinese stock market reached a 22-month high in the week as the benchmark Shanghai Composite Index closed 1.1% higher.