US stocks advanced on upbeat earnings and activity data

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1 01 November 2017 US stocks advanced on upbeat earnings and activity data US stocks rose and Treasuries fell on upbeat corporate earnings and activity data European equities edged up amid upbeat GDP and employment data; core government bonds were flat Asian stock markets fluctuated; Bank of Japan stood pat on monetary policy Markets US equities rose slightly on Tuesday on upbeat corporate earnings reports and as investors await more details on Republican tax cuts and the conclusion of the Fed policy meeting later today. The S&P 500 closed 0.1% higher while the tech-heavy Nasdaq Composite rose 0.4%. Short-tenor US Treasuries fell (yields rose) as investors focused on the FOMC meeting and amid upbeat economic data for October (consumer confidence, employment cost index). The yield curve bear flattened, with 2-year yields up 3bps at 1.60% and 10-year yields up 1bp at 2.38%. In Europe, the regional Euro Stoxx 50 edged up by 0.3% on Tuesday amid some upbeat data releases (e.g. the flash Q3 GDP estimate and September s unemployment rate). Spain s IBEX 35 index continued to outperform (+0.7%) amid easing political concerns. Meanwhile, Germany s DAX ended flat and France s CAC 40 rose 0.2%. Core European government bonds closed little changed on Tuesday with benchmark German 10-year bund yields finishing at 0.36% (-1bp). Equivalent maturity UK gilts were flat at 1.33% with investor focus moving to the upcoming Bank of England policy meeting. In the periphery, longerdated Spanish bonds extended their recent rally (10-year yields fell 4bps to 1.45%). Asian stock markets fluctuated on Tuesday, after the Bank of Japan stood pat on policy and China s manufacturing PMI for October came in weaker than expected (51.6 vs expected). Japan s Nikkei 225 and China s Shanghai Composite ended flat, while Hong Kong s Hang Seng retreated 0.3%. Elsewhere, Korea s Kospi rallied 0.9% to a record high after South Korea and China agreed to restore bilateral relations following a year-long dispute over Korea s decision to deploy a US missile shield (THAAD). Crude oil prices rose on Tuesday as expectations of OPEC and Russia extending their output cuts continued to support sentiment. WTI for December delivery finished up 0.4% at USD54.4 per barrel. Prices continued to rally in postsettlement trading after the American Petroleum Institute report showed large declines in crude (-5.1 million barrels) and gasoline (-7.7 million barrels) inventories last week. Key Data Releases and Events Yesterday As expected, the Bank of Japan concluded its two-day meeting by keeping its policy unchanged, with short term rates at -0.1% and 10-year JGB yield at about 0%. Policymakers maintained the annual pace of JGB buying around JPY80 trillion, although the latest JGB holdings data available suggest an actual level of JPY60 trillion. Like in September, Board member Goushi Kataoka, who would like to see more dovish forward guidance, dissented. He was of the view that it would be appropriate for the BoJ to change the long-end target of the yield curve control framework, from the current 10-year yield at 0.0% to a 15-year yield target of 0.2%. In terms of forecasts, GDP growth was revised slightly upward for the current fiscal year (from 1.8% to 1.9%) and left unchanged for the next two years whilst inflation (CPI less fresh food) expectations were cut for 2017 from 1.1% to 0.8% and, for next year, from 1.5% to 1.4%. Nevertheless, policymakers retained their view that closing output gap and changing inflation expectations will help inflation converge towards target by Japan s unemployment rate for September came in at 2.8%, in line with expectations and at the same level for the seventh time in eight months. At a more granular level, unemployment rose slightly from 2.76% to 2.79%, reflecting a small increase in the number of unemployed (+20k) and a modest decline in labour force (-130k). Meanwhile, the jobto-applicants ratio remained unchanged for a third month, at 1.52, still the highest level since early Japan s industrial production for September came in stronger than expected, at -1.1% mom (consensus -1.6%, 2.0% previously). The decline is mostly explained by a contraction in core capital goods production (ex-transport equipment), which contributed -0.7ppt. The Ministry of Economy, Trade and Industry s survey of production forecast for October was revised up to +4.7% mom from This commentary provides a high level overview of the recent economic environment, and is for information purposes only. It is a marketing communication and does not constitute investment advice or a recommendation to any reader of this content to buy or sell investments nor should it be regarded as investment research. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of its dissemination.

2 +3.5%, a pace that could be partly corrected in November. The first estimate of Q3 eurozone GDP growth was +0.6% qoq, beating consensus expectations (+0.5%) although a touch below +0.7% in Q2. This left annual growth at 2.5% yoy, the fastest rate of expansion since early A significant driver of the recent cyclical upswing has been strong employment growth, reflected in the unemployment rate for September dipping to 8.9% from a downwardly revised 9.0% in the prior month. This leaves unemployment in the region at its lowest rate since January Meanwhile, the flash estimate of October eurozone inflation came in unchanged versus the prior month (consensus: 0.2% mom), with the headline number falling to 1.4% yoy (consensus: 1.5%) and the core measure down to 0.9% yoy (consensus: 1.1%). The downward surprise highlights the European Central Bank s ongoing challenge in reaching its inflation target amid a stronger euro and subdued wage growth. Mexico s GDP declined 0.2% qoq in Q3, modestly lower than projections for a 0.1% dip. An activity slowdown was widely expected, partially owing to the transitory economic impact of two earthquakes in September. The agricultural sector managed positive growth (+0.5% qoq) but headline economic growth was dragged by negative readings in the industrial (-0.5% qoq) and services (-0.1% qoq) sectors. In the US, the S&P/Case-Shiller 20-City Composite Home Price Index rose 5.9% yoy in August, in line with expectations. This index has been expanding by 5-6% yoy in the last two years, helped by low inventory and healthy demand. Meanwhile, the US Conference Board consumer confidence index surged to a near 17-year high of 125.9, past an anticipated reading of Both the expectations (109.1 vs prior month) and current situation (151.1 vs prior month) sub-indices improved relative to upwardly revised prior month prints. In the same report, the labor market differential the difference between respondents saying that jobs are plentiful versus jobs are hard to get jumped to 18.8, a level unsurpassed since July Releases due today (01 November 2017) Country Indicator Period Survey Prior US ISM Manufacturing Oct FOMC interest rate decision US (upper bound) Nov 1.25% 1.25% The US Federal Reserve s (Fed) FOMC is anticipated to keep the federal funds target range unchanged at % as senior policymakers monitor the effects from the balance sheet normalisation program started in October. However, market participants are widely expecting the central bank to raise overnight rates one more time before year-end. The October ISM Manufacturing Index print may come in at 59.4, modestly below September s 13-year high of The new orders, production, and employment subcomponents surpassed 60 in the prior report, indicating a healthy expansion, although hurricane effects may have upwardly distorted input prices and delivery times. 01/11/2017 Investment Daily 2

3 Market Snapshot 1-day 1-month 3-month 1-year YTD 52-week 52-week Fwd Close Change Change Change Change Change High Low P/E Equity Indices (% ) (% ) (% ) (% ) (% ) (X) World MSCI AC World Index (USD) North America US Dow Jones Industrial Average 23, ,485 17, US S&P 500 Index 2, ,583 2, US NASDAQ Composite Index 6, ,738 5, Canada S&P/TSX Composite Index 16, ,065 14, Europe MSCI AC Europe (USD) Euro STOXX 50 Index 3, ,678 2, UK FTSE 100 Index 7, ,599 6, Germany DAX Index* 13, ,255 10, France CAC-40 Index 5, ,514 4, Spain IBEX 35 Index 10, ,184 8, Asia Pacific MSCI AC Asia Pacific ex Japan (USD) Japan Nikkei-225 Stock Average 22, ,087 16, Australian Stock Exchange 200 5, ,957 5, Hong Kong Hang Seng Index 28, ,799 21, Shanghai Composite Index 3, ,421 3, Hang Seng China Enterprises Index 11, ,785 9, Taiwan TAIEX Index 10, ,842 8, Korea KOSPI Index 2, ,528 1, India SENSEX 30 Index 33, ,340 25, Indonesia Jakarta Stock Price Index 6, ,042 5, Malaysia Kuala Lumpur Composite Index 1, ,797 1, Philippines Stock Exchange PSE Index 8, ,587 6, Singapore FTSE Straits Times Index 3, ,392 2, Thailand SET Index 1, ,730 1, Latam Argentina Merval Index 27, ,101 15, Brazil Bovespa Index* 74, ,024 56, Chile IPSA Index 5, ,614 4, Colombia COLCAP Index 1, ,509 1, Mexico Index 48, ,772 43, EEMEA Russia MICEX Index 2, ,294 1, South Africa JSE Index 58, ,038 48, Turkey ISE 100 Index* 108, ,531 71, *Indices expressed as total returns. All others are price returns. 3-month YTD 1-year 3-year 5-year Change Change Change Change Change Equity Indices - Total Return (% ) (% ) (% ) (% ) (% ) Global equities US equities Europe equities Asia Pacific ex Japan equities Japan equities Latam equities Emerging Markets equities All total return data quoted in USD terms. Data sourced from MSCI AC World Total Return Index, MSCI USA Total Return Index, MSCI AC Europe Total Return Index, MSCI AC Asia Pacific ex Japan Total Return Index, MSCI Japan Total Return Index, MSCI Latam Total Return Index and MSCI Emerging Markets Total Return Index. Total return includes income from dividends and interest as well as appreciation or depreciation in the price of an asset over the given period. Source: Bloomberg, HSBC Global Asset Management. Data as of previous trading day s respective market close, except for BarCap GlobalAgg, BarCap US Corporate Index, BarCap Global High Yield and LME copper which are as of previous two trading days market close. 01/11/2017 Investment Daily 3

4 Market Snapshot 2 1-day 1-month 3-month 1-year YTD Close Change Change Change Change Change Bond indices - Total Return (Index Pts.) (% ) (% ) (% ) (% ) BarCap GlobalAgg (Hedged in USD) JPM EMBI Global BarCap US Corporate Index (USD) 2, BarCap Euro Corporate Index (Eur) BarCap Global High Yield (USD) Markit iboxx Asia ex-japan Bond Index (USD) Markit iboxx Asia ex-japan High-Yield Bond Index (USD) Total return includes income from dividends and interest as well as appreciation or depreciation in the price of an asset over the given period. 1-day 1-month 3-months 1-year Year End Bonds Close Ago Ago Ago Ago 2016 US Treasury yields (%) 3-month Year Year Year Year Developed market 10-year bond yields (%) Japan UK Germany France Italy Spain day 1-month 3-months 1-year Year End 52-week 52-week Currencies (vs USD) Latest Ago Ago Ago Ago 2016 High Low Developed markets EUR/USD GBP/USD CHF/USD CAD JPY AUD NZD Asia HKD CNY INR MYR KRW 1, , , , , , , , TWD Latam BRL COP 3, , , , , , , , MXN EEMEA RUB ZAR TRY Latest 1-day 1-month 3-month 1-year YTD 52-week 52-week ago Change Change Change Change High Low Commodities (% ) (% ) (% ) (% ) Gold 1,271 1, ,358 1,121 Brent Oil WTI Crude Oil R/J CRB Futures Index LME Copper 6,867 6, ,177 4,850 Source: Bloomberg, HSBC Global Asset Management. Data as of previous trading day s respective market close, except for BarCap GlobalAgg, BarCap US Corporate Index, BarCap Global High Yield and LME copper which are as of previous two trading days market close. 01/11/2017 Investment Daily 4

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