Week from 7 to 13 October 2019
Equity markets and interest rates rose around the globe as investors sold investment grade bonds to move to riskier assets in the wake of a ‘phase one’ trade deal on intellectual property, financial services and agricultural products between the United States and China. It is certainly too early for any celebration as new levies scheduled for December have not yet been called off, but it may be a paradigm change and at least it is a collective sigh of relief across financial markets.
The Nasdaq Composite and the S&P500 finished up 0.93% and 0.62% respectively but the latter however failed to close above 3,000. The rebound was much stronger in Europe (MSCI EMU: +3.07%, DAX30: +4.15%, CAC40: +3.23%) and Asia (Nikkei: +1.82%, MSCI ALL CHINA+HK+TW : +1.85%).
Unsurprisingly, the industries deemed most sensitive to trade rhetoric and tariffs were the best performers over the week (e.g. materials : +1.85%, industrials : +1.54% ; technology : +1.25%). Energy also fared well (+1.01% WTD) as crude oil prices soared (WTI futures up 3.58%) due to the expectations for progress on trade talks on the one hand, and a missile attack on an Iranian oil tanker off the coast of Saudi Arabia, on the other hand.
Conversely, the most defensive S&P sectors lost ground (utilities: -1.41%, real estate: -0.60%, consumer staples: -0.86%).
The U.S. 10-Year Treasury yield moved up to 1.76% from 1.52% a week ago and the yield curve steepened as short-term rates were held down by news the Fed will extend its overnight repo operations through at least January and buy short-duration T-bills through at least the second quarter of 2020.
Same trend for the 10-Year German Bund yield which bounced back to -0.44% (vs -0.59% last week). Investment grade corporate bonds were also hit by the lower risk aversion (Bloomberg Barclays Global Agg Corporate Total Return Index: -0.74%).
By contrast, high yield bonds and emerging debt closed a bit higher (in the range of +0.2%/+0.34%).
Lastly, gold futures slipped by -1.56%.
Find the full report here: https://www.trackinsight.com/weekly-flow-report/2019-10-11/global