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Week 7 2018 – In Review

 

US Markets – Worst week in two years is followed by Best week since 2013

Stocks carried over the momentum they had recaptured the previous Friday and recorded their best weekly gain since early 2013. The Nasdaq Composite performed best, helped by solid gains in the stocks of Apple and networking equipment maker Cisco Systems. Along with information technology, the financials, health care, and industrials and business services sectors also outperformed within the S&P 500 Index, while energy shares lagged despite a sharp rally in oil prices on Wednesday. The US indexes ended Friday with gains for the year to date and only 4% to 5% off their January highs.

The market’s rebound appeared to be driven in large part by diminishing fears about higher inflation and interest rates. Wednesday morning’s consumer price inflation data came in a bit higher than expected.

 

European Markets Higher

European stocks ended the week higher, with most major indexes showing strength in a variety of sectors as concerns about rising interest rates and inflation apparently eased. The pan-European STOXX 600 index couldn’t recover the steep losses it logged from the week before, but investor appetite for European shares was nevertheless robust, as the STOXX 600 rose around 3% for the week. Blue chip indexes, including Germany’s DAX 30 and the UK’s FTSE 100, also strengthened. Technology, banking, and natural resources shares were some of the standout performers.

 

Positive European Corporate News

With corporate earnings reports in full swing, most companies were topping earnings estimates. As of the end of the week, 54% of companies listed on the STOXX 600 had beaten estimates, and earnings to date had grown about 17% compared with the first quarter of 2017. Stripping out energy shares, earnings growth was 10%. Similar to the U.S., the strength in earnings mainly came from cyclicals and financials.

 

Chinese New Year shortens their working week

Chinese stocks advanced in a holiday-shortened week, paring some of their big declines from the previous week’s global sell-off, as the country prepared for the Lunar New Year holiday. Each year, China’s economy grinds to a halt during the week-long holiday, the country’s most important annual ritual. Chinese mainland markets are closed from February 15 to February 21 this year, though trading was muted in the days before the holiday’s official start.

Departing from its usual practice, the People’s Bank of China (PBOC) reportedly drained $216 billion from the country’s financial system in the weeks preceding the holiday. The PBOC’s recent austerity—following years in which the central bank routinely pumped money into markets to ensure ample liquidity for banks and investors—was seen as part of Beijing’s ongoing crackdown against excessive risk-taking fueled by readily available money.

For over a year, Chinese officials have acknowledged the dangers imposed by the country’s credit-fueled economic growth and pledged to de-risk its financial system. Many analysts regard China’s deleveraging campaign as long overdue and necessary to forestall a severe credit crisis, which they believe poses a key risk for the global economy. “History suggests that China’s debt overhang, if left unaddressed, could post risks to its financial stability and growth,” the International Monetary Fund warned in a recent working paper on China. “With China’s rising economic footprint and its growing influence on global financial markets, its ability to deflate the credit boom safely matters not only for China, but for the global economy.

 

All the best

Stuart

CEO

Farringdon Group

+60 3 2026 0286

 

 

 

 

 

 

 

 

 

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