26 November 2018 Issue 784
Global Market Commentary
- US: The US stock market only opened for half day on Friday. The performance of US stock market is not good due to the impact of international oil prices and the decline of the Internet stocks. For the whole week, the Dow fell 4.44% to 24,285.95 points. The S&P 500 index fell 3.79% to 2,632.56. The Nasdaq fell 4.26 percent to 6,938.98.
- Europe: Investor worried about the Brexit and the Italian budget crisis. For the whole week, the UK’s FTSE 100 index fell 0.87%, the German DAX index fell 1.31%, and the French CAC40 index fell 1.56%. The STOXX 600 index fell 1.04% for the week to 353.98 points.
- Asia: Investors lose confidence towards the stock market due to the bad performance in US. Over the week, the Nikkei 225 index fell 0.16 percent to 21,646.55 points. The MSCI Asia Pacific Index fell 0.86 percent to 150.56 points.
- US: The market’s expectations towards the Federal Reserve rate hike become conservative, causing the US 10-year bond yield fall. For the whole week, the US 10-year bond yield fell by 2 basis points to 3.050%.
- Europe: Due to the weak performance of corporate activity in the Eurozone, the market is worried about the prospects of the economy and suppressed the expectations of the European Central Bank to raise interest rates. For the whole week, the German 10-year bond yield fell by 3 basis points to 0.339%.
- Oil: Due to the oversupply and demand reduction in crude oil. Over the week, New York oil futures fell by 11.04% to $50.42 a barrel.
- US dollar: Investors switch their investment to US dollar due to the bad performance of US stock market. For the whole week, the Dollar Index rose 0.468% to 96.916.
- China:The G20 summit is coming, the Sino-US trade tensions are expected to ease. For the whole week, the yuan rose 0.056% against the US dollar at 6.948.
- U.S: The US Department of Commerce revealed the preliminary results of anti-subsidy investigation into China-made steel racks on November 20th 2018. The subsidy rates received by two companies which came under the probe by mandatory manner are 5.04% and 10.45%.
- U.S: According to Markit data, the US Composite Purchasing Managers Index (PMI) fell to 54.4 in November from 54.9 in October, which is lower than the market expectations of 56.
- U.S: The American Mortgage Bankers Association announced that the US mortgage application index fell by 0.1% per week to 316.4.
- U.S: US Department of Labor announced that after seasonal adjustment, for the week ended 17 November, the initial jobless claims increased weekly by 3,000 to a total of 224,000, more than market projection of 215,000.
- Euro-zone: EU leaders unanimously passed the draft of Brexit agreement at the special summit on Sunday and warned that if the agreement is rejected by the British parliament, negotiations will not be restarted.
- Euro-zone: The Eurozone Manufacturing and Services Purchasing Managers Index fell to its lowest level in two years, and Germany’s economy index fell by 0.2% in the third quarter, which was dragged down by weak exports and private consumption.
- Euro-zone: Markit data showed that the initial value of the manufacturing purchasing managers’ index (PMI) in the Eurozone fell to 51.5 in November, a 30-month low, which is lower than the market expectation of 52. During the period, manufacturing output fell to 50.4 in November from 51.3O in October , which is the slowest growth rate within 65 months.
- Japan: According to Nikkei Markit data, the Japan’s manufacturing purchasing managers’ index hits the two-year low in November, dropping from 52.9 in October to 51.8 in November, which is lower than the market expectation of 52.9.
- Japan: Japan’s Ministry of Internal Affairs and Communications announced that Japan’s consumer price index increased by 1.4% as expected in October, hitting a new high.
- Singapore: According to the data of MTI, the Singapore’s third quarter GDP growth is slow down from 4.1% to 2.2%, which is lower than the market expectation of 2.4%.
|China Market Commentary|
|• The Chinese Ministry of Commerce said that China would support the WTO reforms, the reforms should defend the multilateralism system, and will not allow WTO reforms to abolish China’s rights as a developing economy.
• According to the data of State Administrative of Foreign Exchange, the foreign exchange market of China (excluding inter-bank foreign currency market) aggregated transaction of RMB17.42 trillion in October 2018.
Risk increase as Brexit deal loses support
UK Prime Minister Theresa May achieved a victory, securing Cabinet support for her Brexit deal. Resignations of key ministers, have moved the political momentum sharply against the PM. We believe the event is liked with the lack of support for her Brexit deal, calling for reassessment of different outcomes and uncertainty and headline risk.
Near-Term political risks sharply rising
Chances for the PM resignation or losing a confidence vote are growing, giving a way for a Conservative Party Leadership contest. In this case, it is hard for UK continue on its path toward without requesting a break from EU. Because the current deal must be achieved before the “final date” January 21st. Before the March 29th EU withdrawal date, the range of possible outcomes can be shifted.
In the near-term, an extension from the EU will be the signal for market of the plausible outcomes. In the medium-term, second referendum can be an option to break the political impasse, which can be a better choice than general election.
Never Brexit or No Deal Both Likely
In terms of outcome, “Never Brexit” or “No Brexit Deal”, the two best and worst outcomes for the UK economy and market, is considerably more likely than a successful vote on the current deal.
There are 325 non-Conservatives members compared to 318 Conservatives members in current May’s minority government. The 10 DUP MPs will be key for May’s Brexit votes. However, they are deeply displeased with the deal as it relates to Northern Ireland.
GBP is subject to the process of Brexit
If May can not deal with DUP vote, GBP will face a big downward pressure against USD. However, once UK vote for a Brexit deal, GBP/USD can increase around 1.35 to 1.40 level.
In November, Bank of England hits at faster hikes. Compared to European Central Bank, BOE will be more flexible to hike rate based on the underlying growth and inflation data. However, Carney warned that all bets would be off if Britain leaves the EU without a deal.
From political noise to the dominance of politics
2018 has marked the beginning of the era of the dominance of politics in the financial markets. Politic represent a key market driver in a more fragile economic and market environment in 2019.