The US Indexes soared this week mostly affected by the midterm elections, which caused a relief-rally The Dow Jones Industrial Average closed at 25,989.30 on Friday with a loss of 201.92 points or -0.77% and a weekly gain of 2.6%. The S&P 500 closed at 2,781.01 for a loss of 25.82 points or -0.92%, but up 1.9% w-o-w. The Nasdaq Composite closed at 7,406.90 for a loss of 123.98 points or -1.65%, but up 1% on the week.
The markets closed lower on Friday amid a higher-than-expected inflation reading from Producer Price Index of 2.9% vs an estimation of 2.5% and the continued planning of Federal Reserve for more rate increases. Also, there were fears for lower than expected global growth and a declining oil price.
This week, Brexit talk continued. UK and EU negotiators are close to a draft of the Brexit deal, but they are still discussing about fishing rights and the Irish border issue.
On Monday the IHS Markit Services PMI was released. It fell to 52.2 in October, below economist’s expectation of 53.8 and down from 53.9 September reading. Brexit uncertainty and slow down in global growth has reduced demand for businesses for which UK is among the biggest exporter, such as finance and advertising.
On other hand, GDP data for the third quarter was surprisingly strong. Good and services produced in UK grew 0.6 per cent in the third quarter of the year, up from previous three months reading of 0.4 per cent. However, towards the end of the third quarter growth was zero and the economy’s strength might have been influenced by some temporary factors such as heatwave, football World Cup and royal wedding.
In more details, exports and household spending were strong, but offset by declining business investment (1.2% drop in the third quarter). It is expected a weaker growth in the coming quarter.
The FTSE 100 ended the week at 7.118, which is 0.34% higher compared to previous week close. Miners heavily weighted in the index, negatively affected the performance, because of trade war fears. Moreover, the weaker oil price, negatively affected integrate oil companies but positively influenced airline companies. Overall, the pound appreciated by 0.03% against the dollar and by 0.40% against the euro, with the GBPUSD at 1.2973 and the GBPEUR at 1.1442. The yield on 10-year gilts remained unchanged at 1.49 per cent in Friday’s trading compared to previous week close.
Economic releases in the upcoming week include UK unemployment rate for the month of September (expected 4%) and the UK inflation rate for the month of October (expected 0.2% MoM)
This week, Italian banks came under pressure again after Goldman Sachs downgraded some of the biggest lenders, because of lower loan growth, increasing funding cost and Italian uncertainty. Italian BTP spread over 10-year Bund rose to 298.7, up from previous week reading of 288.2. Moreover, Brussels warned and increased confrontation with Italian’s coalition government about the budget plan that would breach the EU’s 3 per cent deficit limit in 2020 according to their economic forecasts.
This negatively weighted on the FTSE MIB which ended the week at 19.258 which is 0.68% down compared to last week close. A key date to watch in the coming week for Italy is the 13th November that is the deadline for Italian government to resubmit a revised budgetary plan to the EU commissions.
On Friday, Brent crude oil price went below $70 and closed at $69.5, which is almost 20% lower than the four-year high price ($86.74) it reached just one month ago. This bear market trend comes after US decided to grant waivers to the US sanctions that allows Iran’s largest importers, such as China and India, to continue buying oil. Moreover, Iraq managed to close a deal with Kurds to restart oil exports from Kirkuk, that put pressure on oil prices.
The downward trend in oil price negatively effected European energy companies. Overall, Euro Stoxx 50 ended the week at 3,229 which is a 0.47% week over week increase. Eurodollar closed at 1.134, with a weekly decrease of 0.41% compared to last week close of 1.139. The 10-year Bund yields ended at 0.41, almost unchanged compared to last week close. Italian 10-year yield rose to 3.41, which is 9bp higher compared to last week.
Asian stock markets largely fell on Friday, mostly erasing the week’s gains while Nikkei was the only one to move in positive territories. The biggest drop was in Hong Kong, where stocks were down more than 2% to extend the week’s losses.
The worries over U.S.-China trade relations kept high, but also investors saw consumer inflation ticking up higher.
Japan’s Nikkei NIK fell 1%, sliding from its 2½-week high Thursday and was unchanged week-on-week. After rising 6 of the past 7 trading days, Hong Kong’s Hang Seng Index HSI was down 2.4% on Friday, and -3.4% on the week. China’s Shanghai Composite SHCOMP fell 1.3% — on pace for a fifth-straight drop and was 2.9% down on the week.
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