US stocks closed mostly higher on the week ended December 1, 2017. The Dow Jones Industrial Average recorded its best weekly gain for the year, gaining 673.60 points (+2.9%) to close at 24,231.59. The S&P 500 Index gained 39.80 points (+1.5%) to close at 2,642.22, while the Nasdaq index recorded a loss of -41.57 points (-0.6%), closing at 6,847.59. On Tuesday, these three indices reached a new intraday record high.
Stocks were pulled higher in part due to optimism regarding President Trump’s proposed tax cuts, as well as good GDP data – 3rd quarter GDP growth was revised upwards to 3.3%. In addition, pending home sales increased the fastest in eight months in October, and the Conference Board’s gauge of consumer confidence was positively surprising. Financials outperformed due to an increase in long-term Treasury yields, which improved the outlook for bank lending margins. Energy stocks rallied after oil prices increased due to an agreement between OPEC and Russia to keep current oil production limits during 2018. Volatility was higher – the VIX Index reached 13.82 on Friday, closing the week at 11.32. The 10-yr Treasury yield closed the week at 2.36%, up by 2 basis points.
The week ahead will be busy. Purchasing Managers’ Index (PMI) data will be released on Tuesday, while productivity data will be reported on Wednesday and the November jobs report on Friday.
European Indices have experienced a drop with respect to the previous week. In fact, German DAX decreased by 175 points (-1.34% WoW) as losses in Industrials, Chemicals and Technology sectors dragged Frankfurt Stock Exchange down. French Investors lacked enthusiasm and on Friday, CAC 40 was traded at 5316.89 which is 1.15% lower than in the week before. This drop was caused by the losses across different sectors, with technology companies suffering the most (i.e. SOITEC: -10.79% WoW) and Peugeot’s rating being downgraded by Citi resulting in 6.7% decrease (WoW) for French automaker. Stoxx 50 finished Friday’s session losing 48.63 points (1.36% WoW) and, FTSE MIB followed by losing 282.9 points (-1.26% WoW). The only exception was IBEX 35 with slight gain equal to 59 points (0.59% WoW).
Bond rates placed itself in decreasing trend driven by German 10Y Bond that closed at 0.305% which is 55 basis points lower than a week earlier. In addition, French 10Y yield finished at 0.607% after decreasing by 88 basis points WoW. Lastly, on Friday, Italian 10Y bond had yield equal to 1.716% which is -95 basis points lower than one week before.
Currencies remained calm throughout the week. Euro was worth 1.1896 USD (-0.31% WoW), 0.8829 GBP (-1.32% WoW) and 1.1614 CHF (-0.64%). Safe to say that cryptocurrencies drew considerable portion of global attention.
Next week, on Tuesday, the Composite PMI Final Markit for October will be published (expected 57.5). On Thursday, the GDP Growth Rate YoY and MoM for 3rd Quarter will be announced; the growth rates for Q2 were 0.7% and 2.3%, respectively.
Hopes for a pacific settlement of Brexit led to a 1% increase of sterling, which is now worth USD1.347.
However, the FTSE 100 suffered from the strength of the pound, which can hurt the profits of multinational companies that earn revenue in foreign currencies, and lost 1.13%.
Bank of England (BoE) Governor Mark Carney warned that £26 trillion of derivative contracts cleared through London could be at risk if Brexit negotiations fail to agree to a legally accepted solution that continues to allow UK banks their “passporting” rights, that is the ability to perform cross-border contracts. To mitigate these risks, Carney proposed a Brexit transition period of at least 18 months.
Following stress tests of UK banks, the BoE announced that it would raise a special buffer half a percentage point, to 1%, to lock in capital that banks are currently holding voluntarily. While the major banks passed the stress test, the BoE special buffer requires banks to set aside more capital that they can draw from during severe downturns.
UK government bonds weakened as Brexit talks progressed. The developments improved expectations surrounding the UK’s economic outlook, driving the yield on the 10-year government bond back above 1.3%.
Rest of the World
Japan’s Nikkei 225 closed at 22,819.03, the highest in 3 weeks, after it gained 1.9%. The rise was supported by strong performance in the steel and machinery sectors. Topix was also higher this week and closed at 1,795.53 with weekly gains of 1.88%. The Shanghai Composite Index traded in negative territories this week and closed at 3,317.62 after it lost 1.98% because of weaker than expected manufacturing data. The Hang Seng Index lost 2.7% during the week and closed at 29,074.23 because of concerns about North Korea’s new missile test and China’s weak economic data. The Asian markets followed the movements in USA where prices fell because Michael Flynn pleaded guilty to the FBI for Russia accusations.
Japanese Yen gained 0.80% against the US dollar week-on-week, closing at ¥112.12. The Australian dollar traded lower at $0.7563 on Friday amid concerns about consumer demand, losing 0.8% week-on-week.
Oil prices surged this week because OPEC countries agreed to extend the market stabilization plan until the end of next year and thus production will remain at 1.8 million barrels per day. On Friday, crude oil closed at $58.36 which is 1.67% than then a week earlier. Finally, Brent closed at $63.73 per barrel posting 1.76% weekly profits.
Gold prices settled higher on Friday, but still recorded a loss for a second week in a row. Prices had climbed to highs above $1,292 after former US national-security adviser, Michael Flynn, pleaded guilty to lying to the FBI. The news increased the demand for gold as a safe haven asset.