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Weekly Market Focus 08 October 2018

Markets

WEEKLY FOCUS – US 10 year yield reaching cyclical highs extends the business cycle                   08 October 2018

 

 

The global macro environment remains unchanged with strong US growth diverging from Europe and emerging economies. After the recent rate hike and policy guidance from the FOMC Chair, economic data is being scrutinized for its impact on the financial sector. A key aspect is  whether the spread between the 10 and 2 year treasuries would invert the yield curve and signal a recession as the bond market was out of synch with the economic data.

 

The labour market data of last week showed 140,000 new jobs created and provided a test for the bond spread. The 10 year yield, which had reached cyclical highs, maintained its resilience comforting investors with a long growth bias. On the other hand the Russell 2000, which is indicative of the broader market and economy, fell by 3.8% last week and the Utilities and Financial sectors had the best weekly performance (see chart above). Consumer discretionary and technology stocks declined the most highlighting the fact that portfolio allocation and risk management remains critical.

 

In Europe, the situation will be dominated by the Italian budget deficit, which is forecast to be 2.4% for the period 2019 – 21.  Analysts have voiced concern that the assumptions are based on optimistic growth and interest rate scenarios and the revenue side is vague. It seems likely that the first draft to be submitted to the European Commission will result in a negative viewpoint. On Thursday, the ECB minutes should provide more insight on the less dovish stance of the central bank, their assessment of wage growth and whether a mechanism for forward guidance on interest rate rises has been on the agenda.

 

China’s trade data to be released this week should show weakness both on exports on imports based on earlier PMI estimates due to a slowdown in Europe and emerging economies.  

 

 

Value

Week

YTD

Equity Indices

 

 

 

S&P500

2,886

-0.97%

7.93%

S. Africa

3,205

-3.94%

-15.47%

FTSE100

7,319

-2.55%

-4.80%

DAX

12,112

-1.10%

-6.24%

CAC40

5,359

-2.44%

0.88%

Swiss Mkt.

9,042

-0.51%

-4.49%

FTSE MIB

20,346

-1.77%

-6.90%

Shanghai Comp

-3.72%

-3.72%

-17.86%

BSE Sensex

34,377

-5.11%

0.94%

Nikkei

23,822

-1.33%

4.64%

Major currencies

 

 

 

USD/ZAR

14.77

4.43%

19.42%

EUR/USD

1.15

-0.73%

-3.95%

GBP/USD

1.31

0.71%

-2.90%

USD/CHF

0.99

0.99%

1.79%

EUR/CHF

1.14

0.25%

-2.23%

USD/JPY

113.72

0.03%

0.91%

EUR/GBP

0.88

-1.45%

-1.09%

USD/AUD

1.42

2.53%

10.63%

Dollar Index

95.31

0.60%

3.79%

 Commodities 

 

 

 

Brent

84.16

1.74%

25.86%

WTI Oil

74.34

1.49%

23.04%

Copper

2.75

-1.29%

-16.13%

Aluminum

 2,117.50

5.71%

-6.94%

Platinum

825.30

0.83%

-11.69%

Sugar

12.63

21.21%

-16.69%

Corn

368.25

3.37%

4.99%

Coffee

108.95

6.34%

-13.67%

Gold

 1,201.20

0.81%

-8.26%

Cotton

76.09

-0.38%

-3.03%

 Sovereign Yields

 

 

 

US10Y

3.23

0.17

0.83

UK10Y

1.73

0.15

0.54

Germany10Y

0.58

0.11

0.15

 

     

Contact: DBN +27 ( 0 ) 31 566 3365 | CPT +27 ( 0 ) 21 851 0920 | JHB +27 ( 0 ) 11 017 7230 | Email:enquiries@pegasuswm.com

Disclaimer: The research report has been prepared for information purposes and does not constitute an offer. While reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and the company accepts no liability whatsoever for any direct or consequential loss, including without limitation any loss of profits, arising from reliance on this report.
 

 



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