Geopolitics Hog The Headlines

Transcription

1 Week in Review 25 May 2018 Geopolitics Hog The Headlines A Week on the Markets A largely negative week for global equities as European politics drive unease and US-Korean talks about talks exasperate observers. A quick glance at the performance of stock markets identifies Europe as a source of concern for some investors. Market concern about the likely policies of the incoming populist government in Italy knocked the country s equity market by 4.5% in the week. Meanwhile, Spanish equities struggled after the main opposition party increased the likelihood of a near-term election by calling for a motion of no confidence in the government. Ireland finished the week on a high. The ISEQ was a top performer as Ryanair, Smurfit Kappa and Paddy Power all posted strong advances. Even a sharp fall for food group Aryzta following another profit warning failed to relegate the weekly return into negative figures. US equities eked out gains for the week, with investors ultimately seemingly unperturbed by US President Trump cancelling his planned June summit with North Korea s Kim Jong Un, citing Korea s tremendous anger and open hostility in recent comments. A comparison of the countries relative nuclear capabilities was thrown in for good measure. However, it now looks like the summit could still be a live option. Bond markets bounce Mounting concerns around geopolitical developments stirred interest in defensive assets. Having broken through the 3% yield ceiling last week, 10-year US Treasuries rebounded on the release of minutes from the last FOMC meeting was interpreted as meaning two rather than three more rate hikes this year. The action in Europe was arguably more significant as bond investors reacted to economic data releases that revealed a continuing moderation in the pace of growth in Purchasing Managers Indices (PMIs) compiled by IHS Markit reflected a larger-than-expected softening in growth activity in the region, notwithstanding a pick-up in French manufacturing. The Eurozone composite PMI dipped to an 18-month low of 54.1, with IHS Markit citing weaker new order growth and slower rates of hiring as companies became less optimistic. Readings above 50 are indicative of growth. Against the uncertain political and economic backdrop, Spain and Italy were outliers in euro area bond performance. Italian and Spanish bonds were weaker with respective 10-year yields rising 23 and 2 basis points bond prices fall when yields rise. German bonds were in demand though, with 10-year bund yields falling 17bps to 0.41% its lowest level of 2018 while Irish 10-year yields were 6bps lower at 0.96%. UK gilts rallied as annual inflation fell to 2.4% in April the lowest in over a year prompting questions around whether the Bank of England will raise rates at all in 2018.

2 Elsewhere Oil prices experienced a 3% fall on Friday as recent momentum halted abruptly on reports that Saudi Arabia and Russia may start to increase supply. The euro continued its downward progression versus the US dollar, reflecting the latest political uncertainties in the region and some weakening of the growth synchronicity narrative US economic activity remains robust, while Europe appears to losing traction. Brazil s stock market had a bit of a shocker as it fell 5%. Falling oil prices were a factor, given the market s large energy sector. This was not helped by oil companies cutting diesel prices by 10% in the face of demands from Brazilian truckers who have been staging a massive strike. The strike has paralysed parts of the economy in the past week. Turkey s central bank was forced to act to support the free-falling lira, raising its late liquidity window rate by three percentage points to 16.5% as it sought to counteract the effect of President Erdogan s comments of the previous week about taking control of monetary policy. Source: All information is from Bloomberg Finance LP as at 25th May 2018 unless otherwise noted and has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. A Week on the Markets Source: Bloomberg Finance LP. Capital returns in local currency for the week to Friday 25th May Past performance is not a guarantee of future results. Charting the Week Euro falls for 8 th week in last 10

3 Eurozone PMIs lag expectations, despite French pick-up Source: IHS Market German bonds gain While Italian bond sell-off continues

4 Oil price rally abruptly halted Past performance is not a guarantee of future results All graph data, unless stated otherwise, is sourced from Bloomberg Finance LP as at 25 May 2018 Legal/Privacy Policy Important Risk Information: This material is solely for the private use of SSGA clients and is not intended for public dissemination. Ireland: State Street Global Advisors Ireland Limited is regulated by the Central Bank of Ireland. Registered office address 78 Sir John Rogerson s Quay, Dublin 2. Registered number T: +353 (0) Fax: +353 (0) Web: ssga.com. This is not investment research. The information contained in this document is current as of the date presented unless otherwise noted. Equity securities may fluctuate in value in response to the activities of individual companies and general market and economic conditions. Currency Risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged. Bonds generally present less short-term risk and volatility than stocks, but contain interest rate risk (as interest rates raise, bond prices usually fall); issuer default risk; issuer credit risk; liquidity risk; and inflation risk. These effects are usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. Investing involves risk including the risk of loss of principal. The information contained in this communication is not a research recommendation or investment research and is

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