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Weekly Market Focus 05 November 2018

Markets

WEEKLY FOCUS – US economic growth on track despite market sentiment                                    05 November 2018

 

 

74% of companies in the S&P500 have reported Q3_2018 earnings and according to Factset data, the blended earnings growth rate is 24.9%. This is the quarter with the highest earnings growth rate since Q3 of 2010. The macroeconomic data for the month remains supportive as most measures of demand are growing at a nominal rate of between 3% to 5%, employment growth for the year has accelerated over the past year and inflation has picked up but remains within the FED’s target range, wage growth is at its highest level in ten years, household debt is nowhere near the levels seen during the last financial crisis and likewise for corporate debt. The above shows there is no indication of an imminent recession.

 

There is a stark divergence between the US and Europe as Manufacturing PMIs data released last week show a deceleration in Germany, France and Italy with the latter which is embroiled in a protracted budget approval process with the European Commission recording a figure of 49.2, implying a contraction. Germany, the engine of growth of Europe is looking very different after Angela Merkel’s re-election as she is having to compromise with her allies and the situation does not look set to change soon.

China manages to remain just above the 50 mark for Manufacturing PMIs as the fiscal and monetary expansion to counter trade barriers implemented since last February prevent further deterioration of economic activity.

 

Against this backdrop, market sentiment seems to have become less bullish as investors ignore earnings report and speculate on a possible future slowdown. The key in such a scenario is to focus on data releases as the US economic growth has surprised many by reaccelerating in the second half. While sentiment may cause divergence between markets and economic growth, in the longer run they follow a similar path (see chart above).

The main event of the week is the US mid-term election which should provide more clarity on future fiscal policy.

 

 

 

Value

Week

YTD

Equity Indices

 

 

 

S&P500

2,723

2.42%

0.37%

S. Africa

3,276

7.87%

-13.39%

FTSE100

7,094

2.23%

-7.52%

DAX

11,519

2.84%

-11.24%

CAC40

5,102

2.71%

-4.30%

Swiss Mkt.

8,992

3.77%

-5.44%

FTSE MIB

19,390

3.78%

-11.48%

Shanghai Comp

2,676

-3.72%

-17.86%

BSE Sensex

35,012

4.98%

3.61%

Nikkei

22,244

5.00%

-3.89%

Major currencies

 

 

 

USDZAR

14.30

-2.04%

15.70%

EURUSD

1.14

-0.14%

-5.22%

GBPUSD

1.30

1.09%

-4.02%

USDCHF

1.00

0.66%

2.71%

EURCHF

1.14

0.47%

-2.65%

USDJPY

113.20

1.15%

0.62%

EURGBP

 0.88

-1.24%

-1.26%

USDAUD

1.39

-1.43%

8.82%

Dollar Index

96.34

0.22%

4.83%

 Commodities 

 

 

 

Brent

72.83

-6.17%

7.36%

WTI Oil

63.14

-6.58%

2.45%

Copper

 2.80

2.15%

-13.41%

Aluminum

 1,978.75

-1.51%

-11.37%

Platinum

872.10

4.32%

-8.79%

Sugar

13.44

-2.89%

-12.21%

Corn

371.25

0.95%

5.17%

Coffee

120.05

0.33%

-6.65%

Gold

1,230.90

-0.13%

-6.48%

Cotton

78.78

0.29%

0.88%

 Sovereign Yields

 

 

 

US10Y

 3.22

0.14

0.78

UK10Y

1.49

0.11

0.28

Germany10Y

 0.44

0.08

0.00

 

Contact us: Durban +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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