Week Ending 19th January
The major equity market indexes finished with modest gains for the holiday-shortened week. Stocks registered sharp gains on Tuesday, which saw the S&P 500 Index record its best one-day advance since November. Consumer staples stocks led gains within the S&P 500, while energy, industrials and business services, and real estate shares lagged.
S&P 500 Climbs Again
The S&P 500 rose 25 points last week (5% for the year so far) amid the second week of fourth-quarter earnings reports which drove much of the market’s movements. Goldman Sachs fell on Wednesday after reporting mixed results, while rival Morgan Stanley rose on Thursday after beating estimates. IBM fell sharply in early trading Friday, after providing guidance that disappointed many analysts. A one-time charge related to the recent tax reform bill led to a sharp decline in earnings for Citigroup, reported Wednesday. This and other earnings declines in the financials sector led data and analytics firm FactSet to drastically reduce its estimate of overall earnings growth for the S&P 500 Index, to a decline of 0.2% versus an advance of 10% estimated the week before.
Treasury Yields Rise as US Government Shutdown Looms
The policy environment also returned to the forefront and appeared to limit the market’s gains. With federal spending authorizations set to expire on Friday evening, congressional officials scrambled to pass a bill to keep the government funded. The prospects for passage of a compromise measure that would attract enough Democratic votes in the Senate fluctuated but seemed to grow dimmer as the week progressed. The House passed a bill along party lines on Thursday, but the trading week ended without any action in the Senate.
The prospect of a government shutdown beginning Saturday morning diminished the appeal of U.S. assets, pushing the U.S. dollar lower and Treasury yields higher. (Bonds prices and yields move in opposite directions.) Municipal bonds outperformed Treasuries, helped by restrained supply due to light issuance during the shortened holiday week.
European Indices Rise Together
European equities ended the week higher, boosted by rising technology and industrial stocks, a lift in corporate sentiment, and upbeat economic growth data from China. The European STOXX 600 index was marginally higher, recording a 0.5% gain. Germany’s blue chip DAX 30 advanced just over 1%. The French CAC 40 and Spain’s IBEX 35 also gained for the week. The UK’s FTSE 100 managed to stay in positive territory despite some downbeat economic news.
A strong euro tempered some of the equity gains. Eurozone central bankers were raising alarms about the euro’s strength, calling it “a source of uncertainty” and unhelpful. Despite a trend of broadening eurozone economic recovery, December’s consumer price index (CPI) showed that inflation was slowing somewhat. Eurozone CPI came in at 1.4%, with core CPI stubbornly staying at 0.9%. UK inflation dropped back to 3%, and the core inflation was a slightly softer-than-expected 2.5%.
2017 Saw China’s annual Growth Increase for the First Time in 7 Years
China’s economy expanded more than expected in the final quarter of 2017, helping the country deliver faster annual growth for the first time in seven years, though the government’s pledge to prioritize higher-quality growth is expected to lead to a long-term slowdown.
China’s gross domestic product (GDP) increased 6.8% in the fourth quarter of 2017 from a year earlier, the country’s National Bureau of Statistics reported, the same pace as the previous quarter. For the year, China’s GDP rose to 6.9%, up from 6.7% in 2016 and marking the first annual growth uptick since 2010. The full-year growth pace easily beat Beijing’s annual target of around 6.5%. Much of last year’s growth pickup stemmed from growth in exports, as a broadening global recovery drove demand for Chinese goods. However, infrastructure spending and continued credit growth also played a role as government officials sought to maintain economic stability ahead of a leadership transition last fall.
Though China’s economic performance consistently beat forecasts in 2017, analysts believe growth is already slowing, as Beijing has started cracking down on excessive lending and other financial risks. An antipollution campaign that started last fall targeting industries across the country is also expected to curb growth in 2018.
All the best & have a good week
CEO
+60 3 2026 0286
Stuart Yeomans 