Global Markets to 24th September 2018
- Global equities end the week on a positive note as US-China trade war tensions ease.
- The Dow Jones Industrial and S&P 500 indices hit new record highs.
- In Europe, the Euro Stoxx 50 Index closed higher than the previous day for 10 days in a row.
- The Emerging Markets recover some of their recent losses as trade war tensions ease.
- US 10-year Treasury bond yields remain above 3.0% in anticipation of further US rate hikes.
- While global equity markets had a better week, this positive momentum is not expected to last.
Global equity markets gained some positive momentum over the week as tariffs imposed by the Trump administration on Chinese imports were found to be less penalising than many had feared. Furthermore, Beijing’s retaliatory measures were also considered relatively restrained given the circumstances.
The emerging markets understandably benefited significantly from this news – there were stock market gains across the board. Similarly, on Wall Street the Dow Jones and S&P 500 indices recorded new all-time highs, while in Europe, the Euro Stoxx 50 Index recorded its tenth day of consecutive gains, its longest winning streak in two decades.
Meanwhile, in the UK the FTSE 100 Index recovered some of its recent losses, and on Friday recorded its best day for three months, as sterling come under more pressure in the wake of the latest Brexit talks in Salzburg. The British Prime Minister is beginning to show more defiance in her dealings with EU leaders, suggesting that they are failing to “respect” the UK and telling Brussels that it needs to change its position on Brexit, or run the risk of a complete breakdown.
However, most of the sentiment in the marketplace continues to be driven by the ongoing trade war between the US and China. This is resulting in the US’s performance becoming decoupled from that of the other global equity markets. The continuing sanctions applied by both superpowers have clearly had differing effects on the countries’ individual economies. But thus far, the US has emerged less damaged than China.
On the US domestic front, however, the Federal Reserve Bank is likely to raise interest rates once again this month. This could create a degree of uncertainty as analysts focus on the Fed’s updated policy outlook, and look out for any further signs that the committee is becoming more hawkish in its wording.
Predictably, last week’s rise in global equity markets coupled with anticipation that the Fed might raise interest rates twice more before the end of the year resulted in the 10-year Treasury bond yield crossing the all-important psychological 3% level, as well as – possibly more importantly – rising some 23 basis points since the start of August.
From a technical perspective, this obviously needs to be carefully monitored: the Fed is likely to keep raising interest rates throughout the early part of 2019. It is therefore entirely possible that the 10-year Treasury bond yield could gradually rise to nearly 4% as the Fed tightens.
This is also likely to result in pressure on the US stock market. But given how strong the US economy is and how robust corporate earnings currently are, the market could simply shrug off any central bank tightening and remain fairly resilient. Meanwhile, in the UK, the performance of both our stock market and sterling will remain inextricably intertwined with Brexit and the uncertain political backdrop.
In addition to Brexit, the news that consumer giant Unilever wants to relocate its headquarters back to Rotterdam and subsequently exit the FTSE 100 has created further uncertainty in relation to the U.K.’s leading index.
The management of Unilever, famous for owning brands including Marmite, Dove soap and Magnum ice cream, created a level of hostility between it and its UK shareholders when it informed investors of its intentions. Consequently, many of the larger UK institutional shareholders are now engaged in important discussions with the company before voting on the proposal and making any subsequent decisions about their individual holdings.
Elsewhere, US media giant Comcast has finally outbid Twenty-First Century Fox to take over British broadcaster Sky, bidding US$40 billion or £17.28 per share for the business. This follows a lengthy bidding battle between Comcast and Fox for Sky’s coveted assets.
On the commodities markets, the price of Brent Crude oil nudged back towards US$80.00 a barrel ahead of last weekend’s meeting of energy ministers from the OPEC countries, while the price of gold fell below US$1200.00 per troy ounce on the back of a firmer US dollar.
With the exception of Wall Street, global equities markets have arguably found it difficult to make any headway this year. Trade war tensions, a weakening Chinese economy, Brexit, emerging market fallout and uninspiring Eurozone growth figures have all acted as strong headwinds for most markets. Furthermore, with global growth expected to moderate in 2019, the backdrop for global equity returns might be less favourable than in recent years. That said, there are always opportunities on global markets.
Peter Lowman, Chief Investment Officer at Investment Quorum, a Director of the company and an integral member of our investment committee.
This article does not constitute specific advice and investors should bear in mind capital invested is not guaranteed. Investment Quorum is authorised and regulated by the Financial Conduct Authority.
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