Noble Apex eNewsletter Issue 802- Where should we go after 1Q 2019?

2019-04-01 11:34
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1 April 2019 Issue 802

Global Market Commentary


  • US: US Treasury Secretary Steven Mnuchin said that the Sino-US trade negotiations in Beijing was “constructive”, which is beneficial to the stock market. For the entire week, the Dow rose by 1.67% to 25,928.68 points. The S&P 500 index rose by 1.20% to 2,834.40. The Nasdaq rose by 1.13% to 7,729.32.
  • Europe: Theresa May’s Brexit draft was rejected by the Parliament of United Kingdom for the third time, which is same as the market expectation, so it do not make a great effect on the European stock market. For the whole week, the UK’s FTSE 100 index rose by 0.99%, the German DAX index rose by 1.42%, and the French CAC40 index rose by 1.53%. The STOXX 600 index rose by 0.81% to 379.09 points.
  • Asia: Japan’s first quarter short-term large-scale manufacturing sentiment judgment index dropped from 19 to 12, making investors worried about the economic prospect. Over the week, the Nikkei 225 index fell by 1.95% to 21,205.81 points. The MSCI Asia Pacific Index fell by 0.96% to 159.81 points.


  • US: According to the final value of GDP in the fourth quarter of the United States, the annual GDP increased by 2.2%, which was 0.4 percentage points lower than the initial value, reflecting that the economic slowdown exceeded expectations. For the whole week, the US 10-year bond yield fell by 3 basis points to 2.435%.
  • Europe: Germany’s manufacturing purchasing managers’ index fell to 44.7, which was lower than that of Eurozone, 47.6. Moreover, new orders of Germany fell to the lowest level since August 2012. For the whole week, the German 10-year bond yield fell by 6 basis points to 0.072%.


  • Oil: The United States imposed sanctions on Iran and Venezuela, and the Organization of Petroleum Exporting Countries led the cuts in production, causing oil prices rise. Over the week, New York oil futures rose by 1.86% to close at $60.14 a barrel.


  • US dollar: Most of the global economic data is weak. The market is worried that the global economic recession will drag down the stock market, supporting the currency. For the whole week, the Dollar Index rose by 0.655% to 97.284.
  • China: According to Xinhua News Agency, the trade negotiations held in Beijing last week has made a new progress and has discussed the relevant texts of the agreement. For the whole week, the yuan rose by 0.006% against the US dollar to 6.713.


Economic-related News

  • US: US President Trump said that if the Fed didn’t raise interest rates, the US GDP will be higher and the market will be “in a better position”.
  • U.S: Quarles, vice chairman of the Federal Reserve, said that he is optimistic about the prospects of the US economy and may need to raise interest rates later, he claimed that he would not worry about the issue of inverted yield curve.
  • U.S: US consumer spending has increased by 0.1% in January, which is lower than expected. Besides, the Fed’s forecast of no interest rate hike this year is strengthened since the inflation rate is quite low.
  • Euro-zone: The British Parliament vetoed Prime Minister Theresa May’s Brexit agreement for the third time last Friday. The risk of Hard Brexit increased.
  • Euro-zone: The 2018 GDP of UK slowdown to 1.4%, which was the lowest level since 2012 and it is far below the 1.8% increase in 2017. During the period, service industry output has rose by 1.9% year-on-year.
  • Euro-zone: The Italian National Statistical Office announced that the initial value of Italy’s Consumer Price Index (CPI) rose by 1% year-on-year in March, which was similar with market expectations.
  • Japan: Nikkei/Markit data shows that the final value of the manufacturing purchasing managers’ index (PMI) in Japan increased from the previous value of 48.9 to 49.2 in March, which is similar with market expectations.
  • Japan: According to the Bank of Japan’s Tankan survey data, Japan’s first-quarter short-term large-scale manufacturing sentiment judgment index dropped from 19 to 12, which was the largest decline since December 2012 and was lower than the market expectation of 13.
  • Singapore: Statistics from the Singapore Bureau of Statistics show that Singapore’s Producer Price Index (PPI) rose by 0.7% in February this year; the year-on-year decline was narrowed to 1.4% from the previous value of 3.2%.


China Market Commentary
Economic-related news
• Chinese Vice Premier Liu He will visit the United States on Wednesday to continue the economic and trade consultation. According to Xinhua News Agency, the trade negotiations held in Beijing last week have made a new progress and have discussed the relevant texts of the agreement.
• The Chinese Ministry of Finance said that China will continue to suspend tariffs on US autos and auto parts since April 1, which creates a good atmosphere for trade negotiations between the two countries.

Where should we go after 1Q 2019?

Again and again, market is full of surprises and the first three months of 2019 surprised most investors as usual. Global stock markets flipped to hero from antagonist and ended on a high note by end-1Q 2019. The S&P 500 index posted its best quarter since 2009, having jumped 13.1% and leaving the index only 3% off its all-time peak in October last year. Other investments from junk bonds to commodities have also bounced back from their dismal end to 2018. The turn was driven by a dovish shift in rhetoric from major central banks, in particular by the pause in the Fed’s hiking cycle, which may help extend the U.S. economic expansion by some more years. Besides, concern over a trade war eased too, while policy stimulus from China is expected to provide a boost to the Asia-Pacific region. Overall, the recession concerns look overdone last year, and the global cycle conditions are improving at the margin over the last three months. 

Let’s see how different assets perform in 1Q 2019 (in US$):


  • The S&P 500 index surged by 13.7%
  • Nasdaq jumped by 16.8%
  • MSCI EAFE index rose by 10.2%
  • MSCI Europe index increased by 10.7%
  • MSCI EM index up by 9.9%
  • Shanghai Shenzhen CSI 300 index escalated by 31.8%
  • MSCI Asia Pacific index rose by 10.8%


  • Bloomberg Barclays Capital Aggregate Bond Index up by 2.94%
  • S&P U.S. Treasury Bond 10-Year Index up by 3.13%
  • JP Morgan Emerging Markets Bond Index EMBI Global Core USD up by 9.28%
  • Barclays US Corporate High Yield Total Return Index up by 7.26%


  • Gold up by 0.7%
  • Crude Oil WTI up by 32.4%
  • Copper gained 11.1%

Figure 1. Global Performance Across Assets – Total Return (US$)

Source: Bloomberg, Noble Apex/iFund

Sounds great? Equities, bonds and commodities all have excellent performance in 1Q 2019, which is relatively unusual in particular when we see a positive correlation between equities and bonds at current late stage of the cycle. The occurrence of this is likely due to excessive market pessimism last year, which drove mispricing across different assets, while at the same time this also indicates that investor expectations are very diverse in current market given that today’s cycle has been so different from previous experiences.

However, the positive performance and correlation for bonds and equities are unlikely to last for a long time in our view. The rally since January has already taken the global equities markets back to above long-run average level, which imply low but positive earnings growth (i.e. 3.5% global GDP growth) and therefore, leaving little room for another leg up over the remainder of the year as global growth is less likely to accelerate drastically this or next year. For US equities, with valuation stable and margins flat to slightly down, the upside for it will be more dependent on “sales driven” earnings and dividend growth, which we think is reasonable fair at around 6% earnings growth for the S&P500 in 2019 (vs. 22% in 2018).

On the other hand, the recent fall in bond yields has been mostly driven by real yields coming down on rising growth concerns rather than falling inflation expectation. The decline in long-term rates but not short rate has led to recent inversion of yield curve for the 3-month and 10-year Treasury. Despite an impending recession is far from assured at current stage, we believe the Fed hiking cycles is mostly completed and a rate cut is more likely than a hike in future, which should continue to bode well for US. treasury. We are less positive on US high yield, Germany and Japanese bond as they are relatively expensive with yields well below fair value.

Nevertheless, the first quarter was a good lesson and reminder for us of taking a long-term perspective on investments, while opportunities always emerges after periods of disappointment. Instead of trying to time the market, investing is actually about time in the market systematically. Investors should always to keep his portfolio with an appropriate mix of quality investment so that you can stay invested in different market environments.


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