Weekly Market Update

Market Update

UK equities contracted -2.7% in September (total return, Sterling terms), as markets experienced another month of sell-offs following a downbeat August. Once again risky assets succumbed to global emerging market growth concerns and tightening in global financial conditions. On a global scale, equity market returns in September (in local currency terms) were negative throughout, with the only exception being Greece (+0.9%) and Korea (+2.1%). Europe’s performance (-3.8%) was in line with global equity markets (-3.4), while the US fared better on absolute terms (-2.7%) and Japan significantly worse (-7.7%). However Japan still maintained its spot as the best YTD performer.


Notable data releases/events over the last week


U.S. non-farm payrolls stole the headlines this week raising further doubts over the heath of the U.S. economy. Payrolls increased by only 142,000 in September and followed a sharp downward revision of the August estimate to just 136,000. The figure was well below expectations of 201,000 and marked the weakest two-month gain in employment in over a year. The household survey which supported the data release showed that unemployment for the region remained at 5.1% for September, its lowest level since May 2008. Although this rate is encouraging, the labour force participation rate is now just 64.2%, it’s lowest since 1977.


U.S. manufacturing also disappointed as the Institute for Supply Management (ISM) index fell to 50.2 in September from 51.1 the previous month. A reading above 50 indicates expansion. The index was shy of the expected 50.6 and marks the lowest level of national factory activity since May 2013. In addition, U.S. goods exports fell by 3.2% in August, dipping to their lowest levels since mid-2011.


U.S. consumer spending grew at a promising rate last month, providing much welcomed news flow in a week of mainly underwhelming data for the region. Consumer spending rose by 0.4% MoM in August after the same gain in July. The increase was in line with expectations and reflects strong gains in purchases of durable goods. The consumer confidence index also picked up in September, increasing to 103.0 from a revised down August figure of 101.3. Many analysts had been expecting the index to fall to 97.0 however the reading is now the highest since January.


China was struck by further negative data this week as fears of a deepening Chinese slowdown ramp up. China’s official PMI came in at 49.8 for September, after a reading of 49.7 in August. Although the index was higher than the unofficial Caixin China PMI which fell to 47.0 in September from 47.3 in August, the number still which is still below 50 is indicative of economic contraction. This preliminary index, which is based on a survey of factory purchasing managers, fell to its lowest level since March 2009.


Lastly, deflation returned to the Eurozone in September with the headline inflation falling 0.1% YoY. Energy prices proved to be the main catalyst after an 8.9% decline in priced YoY in September. This is the first time inflation had turned negative in six months, although it was highly expected as Mario Draghi, the president of the European Central Bank (ECB), warned earlier last month that inflation was likely to turn negative. Despite this, core inflation, which strips out energy and food prices, held up well over the same period rising 0.9%, on top of the same increase in August.