The Weekly Note

9 October 2018

The Weekly Note

 

Market news

A sell-off in US bonds has rippled through global equity markets over the past week, although European stocks have found some support this morning after further losses yesterday. The 10-year US Treasury yield touched a seven-year high yesterday, reflecting a change in expectation for policy rates following strong economic data and hawkish comments from the Federal Reserve. September’s 3.7% US unemployment rate was the lowest level since 1969, well below the Fed’s forecast of the natural rate.

Markets have also been spooked by the actions of Italy’s populist coalition, following Deputy Prime Minister Matteo Salvini’s description of top EU officials as the “enemies of Europe”. There is sharp concern regarding the country’s upcoming budget, particularly whether the European Commission will consider it tight enough to reduce national debt.

Brexit negotiations continue to intensify, but while there is talk of a deal being struck soon, Theresa May’s spokesman said there are still “big issues to work through” and there needs to be “movement on the EU side”. Reports suggest that a compromise by both sides on the Irish border hinges on the UK temporarily remaining in a customs union, which will be unpopular with Brexiteers.

Despite the deadlock in the Conservative party, the Prime Minister enjoyed a rare positive reception from her speech at the party conference after she pledged to end austerity after Brexit. Westminster also received a boost from Japanese Prime Minister Shinzo Abe, who said that the UK would be welcomed into the Trans-Pacific Partnership (TPP) with “open arms”. The TPP has 11 signatories but was never fully ratified, after President Trump withdrew from it three days after his inauguration.

Stocks in China dropped sharply yesterday following the end of a week-long public holiday, in spite of monetary policy easing at the weekend. Trying to soothe fears of slowing growth, the central bank relaxed its reserve requirement ratio for most banks.

Finally, Brent crude oil fell sharply from its four-year high yesterday following reports that the US was considering scaling back some of its restrictions on Iranian oil imports.

 

Economic data*

Share Closing Values at 1/10/18 Year high Year low
FTSE 100 7,233 7,904 6,867
FTSEurofirst 1,462 1,588 1,416
DAX 11,947 13,597 11,727
DJ Industrial Average 26,487 26,952 22,739
S&P 500 2,884 2,931 2,545
NASDAQ 7,736 8,133 6,518
Hang Seng 26,203 33,484 26,188

 

UK Gifts % Yield Price
10 Year 1.68 99.53
2 Year 0.88 101.98
5 Year 1.24 97.72
30 Year 2.00 89.13

 

FOREX versus US Dollar Last % Change**
British Pound 1.31 -0.21
Euro 1.15 -0.14
Japanese Yen 113.23 -0.07
Canadian Dollar 1.30 0.06

 

Commodities Price (USD) Change** % Change**
Brent Crude Oil 83.91 0.65 0.77
Light Crude 74.29 0.41 0.55
Gold LBMA 1,187.62 2 0.17
 
* Source: Thomson Reuters
** From previous day close

 

Stock focus

Greggs, the UK’s largest bakery chain and indicator of high-street activity, revealed this morning that total sales rose by 7.3% in the 13 weeks to the end of September. It added that expectations for the full year are unchanged, but the performance marks a promising recovery from May’s profit warning.

Unilever has dropped its plan move its headquarters from London to the Netherlands following strong shareholder opposition. Unilever would have lost its FTSE 100 listing and investors warned that some UK shareholders would have been forced to sell their holdings.

RPC Group closed 4.2% down yesterday after a deadline for potential suitors to make a bid for the packaging company came and went. RPC said it had asked the regulator for more time for private equity firms Apollo and Bain Capital to consider tabling an offer, but investors are losing faith.

Royal Bank of Scotland is considering changing its name after admitting its severe reputational damage following the financial crisis and the subsequent decade of painful restructuring, according to the bank’s chairman. Sir Howard Davies said it was shifting focus to investing in its other brands - Coutts, Natwest and Ulster Bank.

Lloyds Banking Group is in talks with Schroders about spinning off its £13bn wealth management division into a joint venture. Lloyds would retain the majority stake and also own nearly 20% of Cazenove Capital, which Schroders bought five years ago. It would be Schroders’ first move into managing money for the ‘mass affluent’ market.

Shares in Aston Martin and Funding Circle continued to fall yesterday, both drifting further from the prices they floated at just last week. Aston Martin are down about 15% and Funding Circle an even sharper 25%, one of the worst first-week performances for a UK listing.

 

Date Category Country Event Reuters poll Prior estimate
9/10/18 External Sector Germany Weak German trade suggests meagre growth in Q3 - Trade Balance, EUR, SA EUR 16.4b EUR 15.9b
10/10/18 Surveys & Cyclical Japan Japan-Machinery orders - Machinery Orders YY 1.60% 13.90%
10/10/18 Surveys & Cyclical China (Mainland) China (Mainland)-Money and lending - Outstanding Loan Growth 13.20% 13.20%
10/10/18 External Sector United Kingdom Britain releases monthly GDP data, plus sector breakdown and foreign trade figures - Goods Trade Balance GBP GBP -10.9b GBP -9.97b
10/10/18 Prices United States United States-PPI demand - Core PPI Final Demand MM 0.20% -0.10%
11/10/18 Prices United States United States-CPI - CPI Index, NSA 252.69 252.15
11/10/18 Labour Market United States United States-CPI - Real Weekly Earnings MM 0.10% 0.10%
11/10/18 Labour Market United States United States-Jobless - Initial Jobless Claims 206K 207K
12/10/18 Prices Germany Germany-Inflation Final - CPI Final YY 2.30% 2%
12/10/18 Industry Sector Eurozone Euro Zone-Industrial production - Industrial Production YY -0.20% -0.10%
15/10/18 Consumer Sector United States United States-Retail Sales - Retail Sales MM 0.50% 0.10%
16/10/18 Prices China (Mainland) China (Mainland)-Inflation - CPI YY 2.50% 2.30%
Source: Thomson Reuters

 

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The Weekly Note

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