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3 January 2019

03/01/2019

Morning Chat & Market Data

Morning Chat

PMIs matter: Asian markets opened the New Year on a rough note. The Hang Seng was down 2.77%, Shanghai Schenzen CSI 300 down 1.37% and most other Asian markets were in the red (Japan was closed). The trigger was China’s Caixin Manufacturing PMI’s unexpected slip to 49.7 (analysts expected 50.2) as a score below 50 is generally taken to foreshadow economic contraction. That said, the Caixin index hasn’t been around that long, bears little correlation to Chinese GDP and the probability of 49.7 or lower is about 30% over the last three years. Still, it’s an unwelcome introduction to 2019.

…Unless they don’t: European markets also opened lower, but rebounded as Wednesday progressed.  The FTSE ended up 0.09%, the DAX +0.20% and CAC down 0.87%. The EU-wide PMI, as anticipated, decelerated from 51.8 to 51.4 – growth, but slower. Weakened by France’s decline to 49.7 from 50.8 (as predicted given the Yellow Vests), it was boosted by Italy’s better-than-expected recovery to 49.2; Germany scored an unchanged 51.5 as expected.  The FTSE’s negligible move was surprising considering the UK manufacturing PMI was anticipated to fall to 52.5 from 53.6, but instead rose to 54.2 – an 11-month high and second month of improvement.

…Or something else comes up: The US Manufacturing PMI came in at 53.8, slightly lower than the 53.9 forecast.  It wasn’t going to move the market much.  With S&P futures predicting a 2.15% fall as of 8am London time, it wasn’t looking good.  Yes, the European PMIs helped as the index tumbled only 1.59% early on. Rather it was the $1.60 per barrel oil price rally thanks to lower Saudi exports in December boosting energy sector equities 2.07% and the US Redbook’s 9.3% year-on-year increase in retail sales lifting consumer discretionary stocks 0.93% that really helped the S&P close +0.13%.

PMIs or Purchasing Manager Indices are derived from surveys of industry participants’ expectations to get a feel for the industry outlook – they’re not actual performance data.

Market Data 

Selected Global Aggregates (Total returns, unhedged)
MSCI AC World Equities (Local) down -1.54 (-0.14%) at 1,082 (YTD: -0.14%; 5YR: 38.0%)
MSCI AC World Equities (USD) down -11.44 (-0.15%) at 7,760 (YTD: -0.15%; 5YR: 29.5%)
Barclays Global Aggregate Bonds down -0.02 (0.00%) at 479 (YTD: 0.00%; 5YR: 5.7%)
 
Selected Equity Indices (Capital returns)
S&P 500 up +3.18 (+0.13%) at 2,510 (YTD: 0.13%; 5YR: 37.1%)
NASDAQ up +30.66 (+0.46%) at 6,666 (YTD: 0.46%; 5YR: 61.3%)
Euro STOXX 50 down -8.24 (-0.27%) at 2,993 (YTD: -0.27%; 5YR: -2.6%)
FTSE 100 up +6.10 (+0.09%) at 6,734 (YTD: 0.09%; 5YR: 0.1%)
CAC 40 down -41.30 (-0.87%) at 4,689 (YTD: -0.87%; 5YR: 10.4%)
DAX up +21.23 (+0.20%) at 10,580 (YTD: 0.20%; 5YR: 12.1%)
Nikkei 225 down -62.85 (-0.31%) at 20,015 (YTD: 0.00%; 5YR: 22.9%)
Hang Seng down -70.25 (-0.28%) at 25,060 (YTD: -3.04%; 5YR: 9.8%)
MSCI Emerging Markets down -10.27 (-1.06%) at 956 (YTD: -1.04%; 5YR: -2.4%)
 
Selected Government Bond Yields
US 10 Year up +0.00 at 2.62 (began the year at 2.68; 5 years ago it was 2.99)
US 2 Year down 0.00 at 2.47 (began the year at 2.49; 5 years ago it was 0.40)
UK 10 Year down -0.07 at 1.21 (began the year at 1.28; 5 years ago it was 3.02)
Germany 10 Year down -0.25 at 0.16 (began the year at 0.24; 5 years ago it was 1.94)
France 10 Year down -0.13 at 0.65 (began the year at 0.70; 5 years ago it was 2.55)
Italy 10 Year down -0.83 at 2.72 (began the year at 2.74; 5 years ago it was 3.91)
Japan 10 Year down -0.13 at -0.01 (began the year at -0.01; 5 years ago it was 0.74)
Barclays EM Basket down -0.04 at 6.18 (began the year at 6.22; 5 years ago it was 5.86)
 
Selected Currencies
€/$ down +0.004 (+0.33%) at 1.137 (YTD: -0.70%; 5YR: -16.4%)
£/€ down +0.006 (-0.55%) at 1.104 (YTD: -0.79%; 5YR: -9.3%)
£/$ down -0.003 (-0.22%) at 1.256 (YTD: -1.47%; 5YR: -23.5%)
$/¥ down +2.07 (-1.93%) at 107.37 (YTD: -2.13%; 5YR: 2.7%)
 
Selected Commodities
Brent Crude ($/bbl) down -0.44 (-0.82%) at 53.39 (YTD: 0.41%; 5YR: -49.9%)
WTI Crude ($/bbl) down +1.13 (+2.49%) at 46.54 (YTD: 2.49%; 5YR: -51.2%)
Gold ($/ozt) up +5.56 (+0.43%) at 1290.16 (YTD: 0.60%; 5YR: 4.3%)
Copper ($/mt) down -123.00 (-2.06%) at 5842.00 (YTD: -2.06%; 5YR: -21.0%)
 
Data sourced from Bloomberg as of the close of last trading day.
YTD = Year-to-date return; 5YR = five year return

SOURCES: BBC; The New York Times; FactSet; Al Jazeera; Financial Times; The Economist; Reuters; CNN; Wall Street Journal; CNBC; Google Finance; Seeking Alpha; The Idea Farm; Bloomberg, Twitter; Wikipedia; Investopedia; The Guardian; The Times of London; Google News; Numerous academic sources and journals; Trade bodies; Government institutions (e.g The Bank of England, The Federal Reserve).

Nicholas Lowson Senior Portfolio Manager Kleinwort Hambros