Weekly Market Update for 3rd October

Market Update

Weekly Market Update for 3rd October

Index  Week Ytd
FTSE 1006899-0.15%-0.14%10.53%14.14%
S&P 500 USD21680.17%0.20%6.08%7.84%
NASDAQ COMP USD53120.12%0.13%6.08%7.09%
EURO STOXX 50 EUR3002-0.99%-0.94%-8.12%-5.66%
NIKKEI 225 YEN16450-1.82%-1.13%-13.58%-12.03%
HANG SENG CNY23297-1.64%-1.64%6.31%10.11%
MSCI EMERGING MKTS USD903-1.53%-1.51%13.77%16.02%
FTSE WMA Income2932-0.34%-0.31%9.98%12.82%
FTSE WMA Balanced3915-0.36%-0.31%10.90%13.72%
FTSE WMA Growth4540-0.36%-0.30%11.61%14.53%
GOLD USD1316-1.62%24.01%
WTI USD488.45%30.24%

 Notable events over the last week

 May to invoke Article 50 by the end of March

Details surrounding the Government’s plan to deliver Brexit was the focus at the opening weekend of the Conservative party conference. Theresa May indicated that Article 50 would be triggered no later than the end of March next year implying that the UK would be prepared to leave the EU by 2019. In her speech, May was adamant that Britain would not “give up control of immigration” in order to remain part of the single market, stating that “(The UK will) be a fully independent, sovereign country”. Attention will now be focused on the rest of the Conservative party conference for further indications of how the UK economy will be steered through Brexit negotiations. The news followed promising GDP numbers out on Friday which revised Q2 growth up to +0.7% quarter-on-quarter (QoQ) from the previous estimate of +0.6% indicating that the UK economy remained more resilient heading into the vote than initially expected.

China’s official PMIs show signs of stabilisation as local governments begin to address the property bubble

The official manufacturing PMI remained unchanged at 50.4 while the non-manufacturing reading rose from 53.5 to 53.7 in September. Encouragingly, new export orders increased over the period, rising to 50.1 from 49.7. Despite the manufacturing PMI hovering just above 50, the level that is indicative of economic expansion, most economists view the sustained momentum as promising given the volatility seen in the first half of the year. Additionally, the measures put in place to control the property bubble forming in China are also a step in the right direction. The tightened home purchasing rules should help to supress prices which are currently expanding by the greatest level for 6 years. Whilst such growth rates may prove to have a small positive effect on the economy over the short term, the medium to longer term downside risk is notable.

Clinton maintains her lead in the polls

Following the first televised debate of the election season last Monday, Hillary Clinton has managed to hold onto her lead against her Republican political rival, Donald Trump. Clinton’s lead may have significantly compressed in the last few months however according to Real Clear Politics she still holds a 2.5 national average point lead. Markets are likely to become increasingly focused on the details in the run up to the election on the 8th November while two additional debates on the 9th and 19th October could provide further catalysts for market volatility.

OPEC agrees to cut production although details are hazy

Following the OPEC meeting last week where the participating countries agreed to potentially cut output by 200-700K barrels at the November meeting, WTI rallied 8.45% to close the week at USD48. The crude oil price has now returned circa 30% year to date. Crucially, however, nothing is set in stone and there is still a chance that the agreement may not be completely fulfilled. The proposed cut range is wide and a lower band cut of just 200k is unlikely to meaningfully effect supply. What is clear, is that the current oil policy is not working and the oil production glut is likely to persist unless more is done to curb supply.

Deutsche Bank shows signs of stress

Deutsche Bank, Germany’s largest lender, began to shows signs of stress last week as the market questioned the firm’s capital position in light of a $14bn mortgage-bond fine by US prosecutors. Although the final compensation figure is likely somewhat less than the $14bn outlined, the share price fell to EUR10 on the news that the bank had only $5.5bn put aside for such probes. This sparked fears that the bank’s capital ratio would drop below the required 7% level, causing a set of junior bonds, known as Contingent Convertibles, to get converted into equity.  The bank’s real concerns surround its long-term costs and profitability as a result of tepid investment banking trends and an ultra-low interest rate environment.

US Q2 GDP revised up again and US consumer confidence rebounds

US Q2 GDP was revised up for the third time this week as a result of slightly higher non-residential fixed investment and less inventory destocking than what was previously reported. Growth was revised up from +1.1% to +1.4% QoQ. Policymakers are still predicting a growth rate of 1.8% for 2016, implying a modest pick up in the second half of the year. There was further good news as consumer confidence picked up from 101.8 in August to 104.1 in September despite market expectations of a decline to 99.0. Significantly, the reading is now the highest since August 2007 boosted by 27.9% of survey participants describing the jobs market as ‘plentiful’, the greatest level since July 2007. The reading was supported by a tick up in the University of Michigan Sentiment indicator for the first time in four months from 89.8 to 91.2. Markets will now be focused on the non-farm Payrolls data out on Friday which is expected to show a further addition of 170 thousand jobs.

Coming up this week (Source Bloomberg)

DayData ReleaseConsensusPrior
MondayUnited States ISM Manufacturing Sep50.349.4
 Japan Nikkei Japan PMI Mfg Sep F50.3
 Eurozone Markit Eurozone Manufacturing PMI Sep F52.652.6
 United Kingdom Markit UK PMI Manufacturing SA Sep52.153.3
 United States Markit US Manufacturing PMI Sep F51.451.4
 Japan Tankan Large Mfg Index 3Q7.06.0
 Japan Tankan Large All Industry Capex 3Q6.50%6.20%
 Japan Tankan Large Mfg Outlook 3Q8.06.0
 Japan Tankan Large Non-Mfg Index 3Q18.019.0
 Japan Tankan Large Non-Mfg Outlook 3Q18.017.0
 United States Construction Spending MoM Aug0.30%0.00%
WednesdayUnited States Durable Goods Orders Aug F0.00%0.00%
 United States MBA Mortgage Applications Sep-0.70%
 United States Factory Orders Aug-0.20%1.90%
 United States Trade Balance Aug-$39.2b-$39.5b
 United States ADP Employment Change Sep163k177k
ThursdayUnited States Initial Jobless Claims Oct255k254k
FridayUnited States Change in Nonfarm Payrolls Sep170k151k
 United Kingdom Industrial Production MoM Aug0.20%0.10%
 United States Unemployment Rate Sep4.90%4.90%
 United Kingdom Manufacturing Production MoM Aug0.40%-0.90%
 United States Wholesale Inventories MoM Aug F-0.10%-0.10%