Global Equity Markets in Review

posted in: Weekly Global | 0

Key Highlights

  • Cautious optimism grips US equity markets
  • China’s bullish run continues in the new week
  • EU posts sluggish growth as trade tussles

US – Trump sounds conciliatory tone as negotiation deadline looms

US stocks remained tepidly buoyant as President Donald Trump raced towards a March 1st deadline for the conclusion of the trade talks with China. The S&P 500 rose slightly by 0.6%, maintaining a narrow range of 20 points throughout all the sessions of the week as investors await developments from the negotiations. This brings the S&P’s cumulative gains over the last 9 weeks to 16%, with the last week being one of the lowest increases during that period, fuelled by external economic developments rather internal market dynamics. US Stocks rose once again on Friday to reach a new year-to-date high after Thursday’s wobble. The S&P 500 has now closely approached the early December high that preceded the massive market drop late last year. Helping to boost the markets on Friday was increased investor confidence surrounding U.S.-China trade talks.

Big names in tech stocks advanced sharply – including Facebook, Apple, Amazon.com, Netflix, and Alphabet (the FAANG stocks) – further pulling up the Nasdaq Composite, S&P 500, and DJIA alike. All three of these stock indexes have now been positive for the first 8 weeks of the year (9 weeks if you include the last week of December).

Fears of a slowing US economy has seen Trump recently adopted a conciliatory tone on many major economic issues, as it dawns on the administration that the country may be saddled with a recession by the time he is up for re-election in November 2020. This was evident in his tone this week as he announced that China and the US were close to striking a deal on trade issues, even hinting that the tussle with Huawei could be fully resolved in the process. He also announced plans to meet with China president Xi Jinping soon as an agreement was imminent. In the event this does not happen, Trump said he is open to extending the March 1st deadline to safeguard US-China trade gains as talks overflowed into Saturday to mitigate the revenge tariffs that disrupted global trade, destabilized global markets and significantly slowed the global economy. A deadline extension would delay scheduled tariff hikes from 10 to 25% on the $200 billion worth of Chinese imports that come to the US annually. These negotiations mark the fourth session of talks since the two countries decided to deescalate their trade war.

China – Rides a wave of optimism amidst positive gains

In China, the bullish steam from the previous week continued into the new week with the Shanghai Index gaining 4.5% and the Hang Seng delivering a decent rise of 3.3% compared to other global markets. Australia also saw a modest gain in market performance with 1.7% but Japan and India’s markets posted recessions as global jitters persisted in their bourses. The bullishness in China was most evident in the real estate segment as home prices and sector growth hit a 19-month high, boosting the composite index. However, this expansion was simultaneous to poor sentiment in Australia after China restricted its importation of coal from the country, shaking the industry and coal stocks in the bourse. Ultimately, China is looking forward to an advantageous settlement with the US in the trade talks considering it has managed to compel the latter to the negotiation tables in the first place and has less to lose because its leaders do not have pressing cyclic political engagements like Trump in the US and can double-down on their demands.

EUROPE – Markets climbing a “wall of worry” as economic outlook teeters on edge of recession

In Europe major markets continued to register sluggish growth as the impact of the US and China trade tussles continue to bite. Investors remained ultra-cautious, delivering minor growth to the leading markets of London, Berlin, and Paris. The FTSE All-Share Index only grew 0.16% by the close of trade on Friday while Germany’s DAX saw a 0.30% rise across five sessions. Meanwhile, France’s CAC 40 Index delivered a tepid growth of +0.38% in line with global markets as the US/China stalemate lingers.

The decline in Germany’s manufacturing continued as US tariffs continued to bite exports, hitting six-year lows. The slowdown in the EU economy comes at a time when the ECB is yet to stabilize interest rates, placing pressure on its monetary policy committee ahead of its next pronouncement expected in April. Meanwhile, Euro yields have plunged to multi-year depths as inflation hovers above 1%, fuelling doubts that the ECB can intervene through rate hikes to consolidate the economy. Hopes of eurozone rallies have dampened with Italy, the third-largest economy continues to languish in recession, a factor that may have fuelled the 0% growth that Germany announced last week, barely escaping recession. Worse still prices are tumbling on reduced consumer sentiment, yet oil prices are appreciating, putting a squeeze on the consumer price index.

Gold – Holds its Own as Interest Rates Fall

As for other key markets on Friday, the price of gold remained firm, having just hit a new 10-month high this past week. Helping to drive gold’s surge since August have been expectations of a slower pace of rate hikes from the Federal Reserve. Speaking of interest rates, the yield on the 10-year U.S. Treasury note has continued to fall as the Fed has become increasingly dovish. The US 10-year bond yield has dropped from over 3.20% in November to its current level around 2.65%.

What to Expect in the Week Ahead?

U.S.-China Negotiations – As discussed earlier, developments in U.S.-China trade negotiations have mostly been positive for markets lately, as it’s clear that both Trump and Xi are willing to do what it takes to make a deal work – however long that may take. If this continues to be the case, upcoming developments in negotiations are more likely to be bullish than bearish for stocks, especially as the newly proposed Mar-a-Lago summit potentially draws closer.

US Economic Data out this week – The global economy has been a source of concern recently. The Fed is clearly worried about economic growth, and on Thursday the US received some less-than-encouraging economic data. In the week ahead, three key economic releases will include U.S. consumer confidence on Tuesday, U.S. gross domestic product on Thursday, and U.S. ISM Manufacturing PMI on Friday. In addition, Fed Chair Jerome Powell will be testifying before Congress on the Semi-annual Monetary Policy Report. This could be a key market mover on both Tuesday and Wednesday, especially if Powell expresses more concerns over economic growth.

Warren Buffett issued the Berkshire Hathaway Annual Report last Saturday, which will feature major changes and additions to Buffett’s portfolio in 2018 and will also likely address Buffett’s successor as well as his views on the markets and economy.

Global equity market performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Source: Bloomberg, Yahoo

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