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Smartim Weekly Market Review

02 November 2018
Smart Investment Management 
The week todate as at 12 p.m. Friday (GMT).

Markets and key events

Market rebounds after a brutal October

After a brutal October, markets have bounced this week as investor nerves were calmed following a combination of positive company earnings results; hopes of a thawing in relations between the US and China; and equity valuations that look a lot more compelling today after a 10% sell off in the MSCI World in dollar terms.

As of 12pm London time, the US S&P 500 index rose 3.1% over the week, the Eurostoxx 600 rose 4.2%, UK’s FTSE All Share rose 3.7%, Japanese Topix rose 3.9%, Emerging Markets rose 3.4%, with the Hong Kong Hang Seng index rocketing up 7.2%.  Whilst government bonds have retreated over the week, with the yield on the 10-year US Treasury now standing at 3.17%, UK gilts 1.47% and German bunds 0.42%Despite the rally in equity prices, gold has held up, rising to $1,237 an ounce over the week.

Positive earnings results and a ‘Tweet’ calms investor nerves

Positive earnings results from the likes of General Motors and DowDuPont in the US, helped to settle nerves.  This was further supported by a tweet from President Trump in which he reported a “long and very good conversation with President Xi Jinping of China” raising hopes that there could be a thawing of relations in the global trade war.  Bloomberg supported the story, with reports that Trump had asked officials to draft possible terms for a trade agreement with China.  US jobs data for October is due out at 12.30pm London time today, with expectations of 190,000 jobs having been created in October, with year-on-year average earnings growth forecast above 3%, for the first time since the financial crisis.

Slowing European growth, no deterrent for bargain hunters

Despite the release of third quarter GDP growth in the Eurozone pointing towards a slowdown, with growth coming in at 0.2% for the quarter, versus expectations of 0.4%, equities nonetheless bounced.  Positive earnings from the UK telecoms operator BT, the Dutch chipmaker ASM and the Swedish technology company Hexagon all helped the recovery in sentiment, whilst depressed valuations following the October selloff tempted in bargain hunters.

Australian equities bounce as materials sector leads the rally

The Australian S&P/ASX 200 rebounded this week by 3.3%, after last week’s losses. The materials sector led the rally, rising 1.1% on Friday alone and miner BHP Billiton was the market leader, closing the week higher by 7.4% after it announced the details of its share buyback scheme.

In economic news, the Australian dollar jumped higher by 2% past US 72¢, on the back of positive news that showed the country’s trade surplus had increased. According to the Australian Bureau of Statistics, the trade surplus climbed to $3.02 billion, higher than the expected $1.7 billion forecast. This boost was primarily explained by commodity exports, in particular iron ore, which surged by $551 million from a month earlier.

Crude oil falls on supply expectations

Crude oil fell more than 3% on Thursday, to its lowest level since August, as traders bet that the oil market will remain well supplied, despite US sanctions on Iranian crude exports coming into effect next week.  Brent crude is currently trading at $73 per barrel, whilst US WTI (West Texas Intermediate) is trading at $63.5 per barrel.

Rumours and counter rumours increases Sterling volatility

As the date for Brexit nears, 29th March 2019, volatility in sterling has picked up noticeably, driven by rumours rather than fact.   The pound slumped to $1.27 on Wednesday, and €1.13 against the Euro, before rally on Thursday back up to $1.30 and €1.14, after a report that the UK and the EU had reached agreement on trade in financial services after Brexit, despite this being described as “misleading” by Michel Barnier, the EU’s chief Brexit negotiator.  This volatility is only likely to increase as the exit date nears.