The financial markets were uneven for another week. US equity large cap index S&P 500 lost 1.61% on a weekly basis. Only two sectors performed positively, real estate gained 0.83% and materials 0.37%. The largest loss was attributed to consumer discretionary sector -3.78%, information technology performing second worst, with a weekly loss -2.46%.
The European equities performed even worse, EuroSTOXX generated -2.20% loss in aggregate. The technology sector losing the most -3.85% closely followed by retailers, losing 3.78%. The telecom and the media sector were the only two sectors gaining, 1.46% and 0.30% respectively.
Brexit made headlines again this week. European markets plunged over Brexit crisis and significant worries that Theresa May could get her agreement with Brussels approved by Parliament. Critics are calling the plan “not suitable”, in which Brussels is given significant power. It threatens UK integrity by creating different regulatory regimes for Northern Ireland and for the rest of the country. Brexit secretary Dominic Raab resigned from the cabinet in the protest. Eurosceptic conservatives are planning to call for a no-confidence vote in PM May. May’s argument is that if Parliament does not approve her plan, then the whole transition plan is threatened and UK may leave the EU without a deal or Brexit may not happen at all. The government has planned to present the final plan for the vote in front of Parliament before Christmas. In reaction to the recent developments, British pound suffered its biggest intraday loss against the dollar and the euro since 2016.
Italy’s decision not to be flexible over the budgetary decisions was another negative news. The country maintains its 2.4% budget deficit target with the economic growth forecast of 1.5%. The growth forecast has been challenged by the International Monetary Fund, where the institution sees 1% more realistic. In reality, the European Commission is forecasting Italy’s deficit to hit 2.9%. European car registration in October fell 7.3%, the second monthly decrease in a row. This shows that troubled European automotive sector continues to underperform. It continues facing many challenges, including technology, policy and recent lack of demand.
In the US news, CPI for October came at +2.50%, in line with expectations. Overall data are signalling steady progress in consumer inflation, while core inflation has slightly slowed down. At the moment, inflation numbers are oscillating around long-term Fed’s target. It is questionable how sell-off in the commodity world, think mainly crude oil, will impact inflation going onward.
The retail sales figure been reported better than expected, 0.8% vs 0.1 %. Industrial production in October has increased by 0.1% in line with expectations.
US 10 year benchmark rate closed at 3.06, losing 12 basis points per week. The flight into safety continues. We are witnessing Turbulence on the fixed income markets, both investment grade and high yield spreads have widened. Although the level of aggregate corporate debt is high, so are corporate incomes and assets. In general, corporate debt is mainly impacted by the stage of the economy. For now, no hiccup on the horizon. If any problems appear, they remain isolated. For example, this is the case for General Electric. The company has been under recent scrutiny. Forced to restructure due to their falling business with their enormous indebtedness.
Singles day shopping festival in Asia organised by Alibaba reached another all-time high in sales figures. The total of growth 27%, The gross merchandise value hit over $30.8 billion in sales in the 24-hour shopping event. Consumer spending remains strong in spite of the Chinese slowdown. Another news from the emerging market world is that Mexican central bank together with Indonesian central bank both raised their rates by 25 bp.
The oil price continues to fall for the sixth week in a row. Last week we had the largest drop in a day with oil price declining more than 6%. On the other hand, prices for US natural gas rise violently. The reasoning was due to the cold weather and highly speculative trading. The Joint Committee for OPEC and Non-OPEC countries examined the fundamentals of crude oil in the coming year 2019. Given the current uncertain economic situation, supply could be larger than demand. The result was that the OPEC countries are ready to act if necessary. In that case, Saudi Arabia wanted to cut production by 500,000 barrels per day. The US president Donald Trump strongly opposed any cuts and urged Saudis not to proceed.
Next week we are expecting important data from the US economy. The National Association of Homebuilders will release a survey which will provide the latest status and outlook for US housing market. For now, the sentiment remains strong, but any disappointment could trigger a negative sentiment. The durable goods orders and flash PMI will provide insights into the corporate sector. From other regions, Canadian and Japanese inflation data will be released. This could hint central bank’s next steps in terms of policy normalisations.