US stocks and bonds fell as government shutdown looms

Transcription

1 19 January 2018 US stocks and bonds fell as government shutdown looms US stocks edged down, led by energy and real estate shares; Treasury yields rose European equities were mixed; core government bond yields rose slightly Most Asian stocks gained amid upbeat Chinese GDP data; Japan s Nikkei 225 closed lower Markets US stocks traded sideways on Thursday before closing in negative territory, with substantial declines in energy and real estate shares in a context of rising interest rates and as housing starts for December disappointed. The S&P 500 ended down 0.2%. US Treasuries fell (yields rose) amid renewed concerns about a possible government shutdown and as initial jobless claims fell last week to their lowest level since The yield curve bear steepened, with 2-year yields unchanged at 2.04% and 10-year yields up 4bps at 2.63%, close to their highest level since European equity markets rose yesterday. The Euro Stoxx 50 Index closed up 0.2%, with gains led by materials and IT stocks. German stocks outperformed, returning 0.7%. Elsewhere, France s CAC 40 closed flat while the UK s FTSE 100 fell 0.3%, to the lowest level in over a week. Core European bonds yields edged higher (prices fell) on Thursday, amid positive investor sentiment as Chinese data releases bolstered the global growth story. German 10-year bund yields rose by 1bp, to 0.57%, whereas equivalentmaturity UK Gilt yields rose by 2 bps to 1.33%. Elsewhere, periphery bonds outperformed, led by Italy on the back of rising domestic demand. Most Asian stock markets opened higher on Thursday, following a positive lead from US markets overnight and as investors awaited Chinese data releases. However, Japanese stocks erased early gains to close lower (the Nikkei 225 fell by 0.4%). Elsewhere, China s Shanghai Composite ended up 0.9% and Hong Kong s Hang Seng closed 0.4% higher following upbeat Q4 GDP data in China. India s Sensex rose 0.5% led by bank shares after news broke that the government is considering raising banks foreign ownership limits. Market sentiment was also boosted by a 60% cut in government additional borrowings, helping to ease fiscal concerns, expectations for better corporate earnings and continued fund inflows. Crude oil prices were little changed on Thursday as the US Energy Information Administration weekly report showed an increase in US oil production last week that offset the significant decline in crude inventories (-6.86 million barrels). WTI for February delivery closed flat at USD64.0 per barrel. Key Data Releases and Events Yesterday US housing starts slipped 8.2% mom in December, missing a forecasted 1.7% mom decline. However, the drop followed solid gains in the prior two months, boosted by post-hurricane activity, and some reversion was not wholly unexpected. Permit data also suggest some underlying strength as single home permit issuance continued to rise 1.9% mom. Meanwhile, headline permits declined a modest 0.1% mom. China s Q4 GDP growth came out at 6.8% yoy, beating market consensus (6.7%) but still hovering in the very narrow range (6.7%-6.9%) observed since mid Premier Li Keqiang explained that this was due to better than expected exports, household income and corporate profitability. The National Bureau of Statistics also released industrial production data for December (+6.2% yoy), fairly in line with expectations. Utilities and metal smelting industries showed stronger momentum than in November while IT products slowed down slightly from high levels the previous month. The biggest surprise came from retail sales, which came out significantly lower than expected in December (+9.4% yoy, consensus at 10.2%), partly due to relatively low car sales at the end of the year. Lastly, YTD fixed asset investment growth was unchanged, at 7.2%. Releases due today (19 January 2018) Country Indicator Period Survey Prior UK Retail Sales ex Auto Fuel (yoy) Dec 2.6% 1.6% University of Michigan Index of US Jan P Consumer Sentiment P- Preliminary UK retail sales are seen declining by 0.9% mom in December, possibly driven by front-loaded Christmas shopping during the Black Friday discount period in 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 November. Overall, this would leave annual growth (excluding auto fuel) at 2.8%, maintaining the downward trend in sales that began in early Elsewhere, the University of Michigan Index of Consumer Sentiment should come in at 97.0, remaining elevated and supported by a steady economy and continued gains in the labour market. In the details, 5-10 year consumer inflation expectations have trended down in the last several years, but the trailing 12-month average has been holding steady at 2.5% yoy since the end of Today marks the deadline for the US government shutdown. There are three main points of contention: lifting automatic budget caps on government spending, resolving the status of deferred action protections for undocumented immigrants who arrived in the US as children (the DACA program), and funding of the Children s Health Insurance Program (CHIP). In order for Democrats to agree to the increase in spending caps, they will likely demand a longerterm solution on DACA. CHIP could be less contentious given the bi-partisan history of the programme. While the consensus remains that Congress is likely to pass another four-week continuing resolution in order to hammer out a comprehensive budget agreement, the risk of a government shutdown is not negligible. 19/01/2018 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 26, ,153 19, US S&P 500 Index 2, ,808 2, US NASDAQ Composite Index 7, ,330 5, Canada S&P/TSX Composite Index 16, ,421 14, Europe MSCI AC Europe (USD) Euro STOXX 50 Index 3, ,709 3, UK FTSE 100 Index 7, ,793 7, Germany DAX Index* 13, ,526 11, France CAC-40 Index 5, ,536 4, Spain IBEX 35 Index 10, ,184 9, Asia Pacific MSCI AC Asia Pacific ex Japan (USD) Japan Nikkei-225 Stock Average 23, ,084 18, Australian Stock Exchange 200 6, ,150 5, Hong Kong Hang Seng Index 32, ,234 22, Shanghai Composite Index 3, ,477 3, Hang Seng China Enterprises Index 13, ,121 9, Taiwan TAIEX Index 11, ,123 9, Korea KOSPI Index 2, ,562 2, India SENSEX 30 Index 35, ,507 26, Indonesia Jakarta Stock Price Index 6, ,483 5, Malaysia Kuala Lumpur Composite Index 1, ,840 1, Philippines Stock Exchange PSE Index 8, ,969 7, Singapore FTSE Straits Times Index 3, ,561 2, Thailand SET Index 1, ,838 1, Latam Argentina Merval Index 34, ,100 18, Brazil Bovespa Index* 80, ,367 60, Chile IPSA Index 5, ,846 4, Colombia COLCAP Index 1, ,553 1, Mexico Index 49, ,772 46, EEMEA Russia MICEX Index 2, ,300 1, South Africa JSE Index 60, ,920 50, Turkey ISE 100 Index* 116, ,395 81, *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. 19/01/2018 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 (Hedged in 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 2017 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 2017 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 2, , , , , , , , 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 1,327 1, ,358 1,181 Brent Oil WTI Crude Oil R/J CRB Futures Index LME Copper 7,034 7, ,313 5,463 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. 19/01/2018 Investment Daily 4

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