United States
In the US, as elsewhere in the world, the markets were driven by the results of US elections. The victory of Donald Trump boosted equity markets. Indeed, The Dow Jones Industrial Average soared to new heights, adding 5.4% for the week which is its biggest weekly gain since December 2011. S&P 500 rose 3.8% on the week, the strongest since October 2014 and the Nasdaq Composite finishing the week 3.8% higher.
On Wednesday, the yield on the 10Y Treasury note rose 20.3 basis points, its largest-one day gain since the 5th of July 2013. In addition, the yields on 30Y bonds, which are more sensitive than shorter maturities to the outlook for inflation, jumped the most this week since January 2009. Demand for U.S debt is diminishing. A $15 billion auction of 30Y bonds Thursday drew bids for 2.11 the amount available, the lowest since February. A sale of 10Y notes on Wednesday had a bid-to-cover ratio of 2.22, the least since 2009.
Dollar scores best week against the Euro since February, appreciating by 2.6%. The ICE U.S. Dollar index, a measure of the buck’s strength against six of its biggest G-10 rivals, rose 0.3% on Friday. Despite Friday’s drop, the Dollar achieved a weekly gain of 3.5% against the Yen.
Next week the data for the US CPI (YoY) (Oct) will be published, the previous reading was 1.5%.
European Union
During the week, the Euro STOXX 50, which opened at 2962.22 and closed at 3030.02, gained 2.29%. The overall gain is misleading since the market did react to the US presidential election with high volatility: the index opened on Wednesday at 2932.5 from a previous day’s close of 3022.03, meaning an overnight movement of -89.53 points compared to a +67.8 movement for the whole week. The reason is highly attributable to the US presidential election, which caused the index to reach a weekly high of 3107 on Thursday and then came back and closed to close at 3030.02.
While equity kept on the same level with high volatility movements, the 10Y Bund showed a sell-off that moved yields from 0.135% to 0.322%. The safe asset showed correlation to the risk-on environment of expansionary fiscal stimulus as expected. At the same time, 10Y Italian Bond moved from a 1.75% to a 2.03% showing the same path of the German bond.
In general, this week the market reacted in the same way as in US. This is not surprising since the main driver has been the US presidential election.
During the following week, data on GDP growth and inflation are going to be released: specifically, on Tuesday German and Eurozone Q3 GDP growth, and UK October’s CPI; on Thursday, Eurozone CPI. Most probably the market will still be influenced by US news, driver that should lose momentum slowly in some time.
UK
Surprisingly enough, the British pound was the best performer among the basket of 32 major currencies in the aftermath of Trump’s election. On Friday, the EURGBP closed at 0.861, 3.25% lower than last week closure. The main drivers of the pound rally against the euro are the decreasing probability of a “Hard-Brexit” thanks to the necessity of the Parliament approval and the uncertainty looming over Italy’s referendum and the 2017 German and French elections outcomes.
The strengthening pound caused the FTSE 100 to underperform its peers, advancing just 0.55% over the week. The pharmaceuticals companies did not rise despite the positive effect coming from Trump’s election: GlaxoSmithKline is up just 0.39% this week; while Astra Zeneca plunged 0.96%.
Nevertheless, the outcome of the US elections led to a rally in the mining sector. The FTSE 350 mining index rose 10.33% this week. In particular, Glencore advanced 17.47% and Anglo American rose 7.18% over the last week, both reaching 16-months highs and YTD performances of over +200%. BHP Billiton was the best performer scoring a +19.89%.
On Tuesday, the manufacturing production for September was released, showing an increase of 0.6% over the previous month which beat the expectations.
Rest of the World
The result of the US presidential elections is propelling shocks throughout emerging markets. The panic in some markets feels a bit irrational, but nobody wants to be caught left behind. The bond selloff was also evident in emerging markets as the South Korean 30Y yield increased by 18.1bps and the New Zealand 10Y yield 21.9bps.
The Mexican peso continues to get hammered, giving up over 3.5% on Thursday. The Mexican stock market plunged 4.5%, and the 10Y bond yield rose above 7% for the first time in over five years.
The risk aversion has spread to other emerging economies, with Brazil being one. The Brazilian real dropped 5% against the dollar in just one day. While the move is not a disaster, it certainly represents a setback for Brazil’s central bank that is concerned about inflation. In addition, the currency rout has not been limited to Mexico and Brazil, with the South African rand (-4.84%), the Malaysian ringgit (-1.05%), and the Indonesian rupiah, (1-month FX forward, -2.28%).
Several emerging markets are bucking the trend. The Russian stock market is still celebrating Trump’s victory, as it is +2.30%.
The renminbi continues to drift lower against the dollar. While the markets are all but ignoring this trend, Chinese residents are certainly not. They continue to look for ways to stabilize their assets in dollar terms – including increasing exposure to commodities. The stock market is benefitting from the Yuan weakness and with metal producers leading gains as the Shanghai Composite Index increased by 1.37%.
Regarding other Asian equities, on Friday the MSCI Asia Pacific Index decreased by 80 basis points and Japan’s Topix index increased by 10 basis points.
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