Pictet North America Advisors

2019 Weekly Views — September 9

Pictet North America Advisors 2019 Weekly Views — September 9
Pictet North America Advisors

2019 Weekly Views — September 9

Pictet North America Advisors 2019 Weekly Views — September 9

Market update

Trade talks resume

The S&P 500 closed the week at 2,978.71, or +1.79% higher from last week. Dow Jones closed at 26,797.46 or +1.49% weekly return, and Nasdaq gained +1.76%. The bulk of the move came on Thursday open after the resumption of US-China trade talks announcement. The volatility index VIX closed the week at 15.00 from a 18.98 level a week before. In Europe, Euro Stoxx 600 advanced +2.02% on the week. Italy outperformed last week with +2.93% and, German DAX gained +2.11% and the UK FTSE 100 underperformed with a +0.98% weekly gain.

The 10y UST closed at 1.56% from 1.49% a week before, intra-week range was 1.42% to 1.60%. The difference between the 10y UST and the 2y UST yield was +1.4 bps on Friday and was positive from Wednesday on. The yield curve moved up on maturities from 2 years on and the curve steepened: 3mo UST from 1.98% to 1.95% yield, 2y UST from 1.50% to 1.54%, 5y UST from 1.39% to 1.43% and 30y UST from 1.96% to 2.02%. US Corporate Bond spreads: Investment Grade remained at 155 bps; High Yield contracted 6 bps to 480 bps. German 10-year Bunds yield closed at -0.64% compared to -0.70% a week ago.

The US Dollar Index (DXY) slipped -0.82% in the week closing at 98.11. EUR closed the week at 1.1029 (+0.42% weekly); the Japanese Yen closed at 106.92 (+0.60% weekly) and the Swiss Franc at 0.9874 (-0.29% weekly). Gold decreased -0.89% in the week and closed at 1,506.92. Oil was up with Brent closing at 61.78 (+2.23% weekly) and WTI up at 56.73 (+1.63% weekly).

Macroeconomy

US economic data
The August ISM manufacturing reading dropped to 49.1, in contraction territory, for the first time since August 2016; both employment (47.4 from 51.7) and new orders (47.2 from 50.8) dropped into contraction territory. In contrast, ISM nonmanufacturing reading printed at 56.4 vs. 54.0 expected. Nonfarm payrolls showed a slightly weaker than expected headline number at 130,000 with a downward revision of 20,000 to the previous two months; wage growth was at +0.4% m-o-m and +3.2% y-o-y. Finally, Unemployment rate was steady at 3.7%.

EU economic data
The Euro Area Final GDP numbers came in as +0.2% q-o-q and +1.2% y-o-y. The August PMIs manufacturing came in at the same level as the flash 47.0 and firmly in a contraction. French numbers were revised slightly higher at 51.1 vs. 51.0 and were offset by a slight downward revision for Germany (43.5 from 43.6). The UK’s manufacturing PMI came in at 47.4 vs. 48.4 expected, the lowest level the UK has reported in over 7 years. The eurozone unemployment rate was unchanged in July, at 7.5% and the Eurozone CPI inflation edged down to 1.0% y-o-y in August, while the core rate was steady at 0.9%. In Germany, industrial production fell -0.6% in July from the previous month.

China economy
Following the PBoC’s recent move to reform the benchmark lending rate, the government hinted at more policy stimulus, including additional cuts in banks’ reserve requirement ratios (RRR) by 50 bps to 13%. The August Caixin services PMI came in at 52.1 (vs. 51.7 expected) whilst the composite read printed at 51.6 (vs. 50.9 last month). The manufacturing reading came in at 49.5, fourth consecutive month in contraction.

Highlights

Trade tensions
US and China resumed contact on Wednesday night agreeing to meet face-to-face in early October in Washington, instead of early September as previously announced. Markets reacted positively with the S&P 500 posting a +1.40% return on Thursday and Friday and the 10y UST moving from 1.46% to 1.56% over the same period.

On Brexit
Boris Johnson lost parliament majority as some Tory members sided with Labour to take control of the agenda and the 21 rebels were expelled from the party. The Prime Minister proposals were rejected twice as MPs backed legislation to stop Britain leaving the EU without a deal and blocked the PM’s attempt to call an election on October 15th to regain the initiative on Brexit. Opposition now refuse any early election unless legislation to stop a no-deal is in place. The PM has said he would rather be “dead in a ditch” than to delay Brexit. The Pound moved in a weekly range of 1.1959 to 1.2354.

Hong Kong protests
On Wednesday, Carrie Lam, Chief Executive of Hong Kong, announced to officially withdraw the controversial extradition bill. She also announced an independent study of the government’s performance and reaffirmed her commitment to reviewing the police’s response to the protests. The Hang Seng index posted a +3.76% over the week even if violent protests continued over the weekend.

What to watch

Monday: British Parliament vote for October elections; UK Industrial production (July); German Trade Balance (July)
Tuesday: US NFIB Small Business Optimism survey (Aug.); France & Italy Industrial production (July)
Wednesday: US PPI (Aug.); US Mortgage applications (weekly); UK House prices (Aug.)
Thursday: ECB Meeting; Euro Zone Industrial production (July)
Friday: US Jobless claims (weekly), Budget statement & Retail sales (Aug.); Japan Industrial production (July)

Investment team ― Pictet North America Advisors