The Weekly - Equities rally on positive Chinese data


This week, we explore the volatile market which appears to be a result of Brexit, whilst global stock markets continue to deliver strong returns. Looking forward, several announcements worldwide will play a key part in future market trends, especially in China and its relationship with the US.

Last week, global stock markets delivered strong returns, buoyed by encouraging manufacturing data from China. Whilst by no means spectacular, the official manufacturing PMI’s return to growth territory after four consecutive months of contraction (it increased to 50.5 during March from 49.2 previously) was welcome news given the sector’s importance within global trade. President Trump also suggested that a trade deal between the US and China was imminent which also helped to boost investor sentiment.

In terms of developed world markets, the largest weekly gains were found in Japan and Germany, two countries with significant trade links with the Chinese mainland. The German DAX30 spiked by more than +4.0% whilst in Tokyo, the Nikkei 225 rallied by +2.8%. Closer to home, large and mid-cap companies enjoyed a solid week of trading; the FTSE100 rose by +2.3% with the mid-cap focused FTSE250 rising by +2.2%. In the US, outperformance by financials and consumer discretionary companies led the S&P500 +2.1% higher.

With investors adopting a more risk-on approach, sovereign bond yields ticked higher across the week. A week after falling below the 1.0% threshold, 10-year gilt yields jumped by 11 basis points (bps) to 1.12% whilst the US treasury equivalent was 9bps higher at 2.50%. The US yield curve, which had briefly inverted a couple of weeks ago, returned to a more normal upwards slope thanks to higher longer-term yields.

In the currency markets, Sterling remained a volatile trade with Brexit uncertainty continuing to loom overhead. It closed the week modestly lower against both the Dollar and the Euro at $1.301 and €1.59 respectively. The Dollar also recorded a steady gain over the Japanese Yen, rising by +1.0% to ¥111.75. Meanwhile, oil continued its strong start to the year with Brent crude rising by a further +2.9% to $70.34 a barrel. Both Brent and WTI have achieved their best quarterly performance in a decade during Q1 of this year. Elsewhere, Gold which typically has an inverse relationship with the Dollar retreated slightly. The precious metal declined by -0.3% to $1,292 an ounce.

Data sources - FE Analytics and Forex Factory - Accessed 08.04.2019

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The Week Ahead

It’s a relatively busy week for domestic data with a number of notable releases due. These include a retail sales update from the British Retail Consortium and a Q1’18 GDP estimate from the National Institute for Economic and Social Research. Wednesday’s manufacturing production data is another worth keeping an eye on given how much Brexit uncertainty has impacted the sector over the last few years.

In China, the latest CPI data is expected to reveal a sharp increase in inflation during March. The country’s latest trade data is also likely to receive plenty of attention, especially the figures relating to its relationship with US. Regarding the US, inflation is also the standout data related release this week. The minutes from the Federal Reserve’s last open market committee will also make for interesting reading following their release later in the week.

Elsewhere in central bank land, the ECB hosts its own policy meeting on Wednesday with no changes expected on this occasion, as Japanese activity is in short supply on this occasion.

 Data sources - FE Analytics and Forex Factory - Accessed 08.04.2019