This week, the two major economic data that we see important at the US are: the monthly CPI which was recorded as 0,1% ,slightly below the 0,2% expectations, and the monthly PPI which was recorded as 0,6% , beating the 0,6% expectations. Next week retail sales and Philadelphia FED’s Manufacturing Index will be released on Thursday.
US 10 year Treasuries started the week with a yield of 2.52% and ended the week with a yield of 2.56%. The 1 month, 1 year, 2 year, 5 year treasuries trade at yields of respectively 2.41%, 2.44%, 2.40% and 2.38%. The 2 year – 10 year yield curve is steep at 0.16 bps however the inversion at the 1 year – 5 year yields continue.
As the earnings season continues we have seen important names reporting this week. Delta Air Lines reported a EPS of $0.96 beating the $0.90 estimate according to Refinitiv, by Friday the bank earnings season started as JP Morgan Chase reported earnings. JP Morgan reported EPS of $2.65 vs. the $2.35 estimate. Both Fixed Income and Equities divisions of JP Morgan had better revenues when compared to the turbulent 4th Quarter of 2018 results however both divisions recorded lower earnings when compared to the 1st Quarter of 2018. Investment Banking revenue was up when compared to both 4th Quarter of 2018 and 1st Quarter of 2018. As a result the bank stocks had a jump on Friday as JP Morgan rose by 4,69%, Morgan Stanley by 4,22% and Goldman Sachs by 2,47%. Lyft, 2 weeks after its IPO has seen significant short selling and has closed at $59,90, the company had its IPO at 29th of March and had entered the market with $70 per share.
S&P 500 has closed at 2907, 0,79% higher then where it closed a week before while the VIX started the week at 13,56, by Friday it closed at 12,01 so it was down 11,06%.
As mentioned in last week recap this week was fundamental to the future of Brexit. On Wednesday night the EU council decided to give Britain an extension on Brexit until the 31st of October of this year giving Britain a 6 month extension to Article 50. Despite this news the pound barley moved over the entire week and only closed up 0.30% at 1.308 GBP/USD from the weeks start of 1.304. Its biggest short lived rally came after the news of the extension broke where the currency pair traded at 1.3012. The general low volatility is a result of investors waiting what will actually come out of this extension as well as a growing phenomenon were news headlines no longer lead to huge movements in the market as investors get used to the political uncertainty. This is confirmed by the GBP Volatility BPVIX almost constantly decreasing from a range of around 12 to closing the week at 5.29.
Additionally, it might be said that the extension, despite being 6 months, will likely not change the current stalemate and a high chance of the government seeking another extension. This is due to the timelines of dates within the extension. There are only 10 weeks until the EU Summit, a month long August summer break and then another 8 weeks until the deadline, with the party conference in the UK in the 8 week time as well. These times are to short for both a general election or a second referendum meaning that the stalemate in the Brexit debate in the house will probably continue.
Looking at the markets reaction on the Bond market and the FTSE 100 similar trends can be seen. The FTSE index started the week at 7,442.03 and closed it at 7,428.56 showing just a slight decrease of -0.18% where no rally or fallout could be seen from the news. The bond market started the week with the 10-year gild at 1.120% and closed at 1.215% giving investors additional 0.095% more yield on the bond. Similar to the FTSE no significant change could be attributed to the breaking news of the Brexit extension.
Major European equity indices: DAX is up 0,17% at 11,999 whilst CAC40 is up 0,58% at 5,502. Euro Stoxx 50 ended the week at 3,447 which is slightly higher then last week’s close, 0,05% week over week increase. FTSE MIB closed at 21,858 up 0,38% on a weekly basis.
Eurodollar closed at 1.13, with a positive weekly performance of 0.56%. The 10-year Bund yields ended at 0.06%, up 6 basis points compared to last week close. Italian 10-year yield traded at 2.55 by Friday. Both equity markets and fixed income markets have not reacted that much to the Brexit deadline extension.
Mario Draghi, the president of ECB was in front of the cameras in Wednesday and highlighted geopolitical uncertainties as potential downward risks for the European economy, the official decision of ECB regarding the central bank’s interest rate didn’t surprise and ECB didn’t change its rate. Draghi noted that at this meeting QE and its future was not discussed. By early this week it has been reported that US would impose a 11 billion $ tariff on Europe due to its subsidies for Boeing rival Airbus.
Japan’s Nikkei 225 closed at 21,859.21 marginally up from 21,852.38. Hong Kongs Hang Seng Index HSI closed down slightly at 29,909.76 showing a -0.7 % decrease. Chinas Shanghai Composite SHCOMP ended the week at 3118.63 closing down -2.24 %. The week has been relatively clam news wise in the RoW.
Australia’s S&P/ASX 200 All Australian closed at 6193.10 showing an increase of 0.84% whilst the Korean stock market closed at 2,233.45 up 0.76%.
A notable movement was in the EM of Turkey. The Turkish finance minister spoke in Washington about planned reforms to boost the Turkish economy. However, he failed to convince listening investors by not being able to provide enough details about the planned reforms. The Turkish lira slide 1.4% after the meeting and recovered some of its losses later. The meeting was at the side of the spring meetings of both the IMF and the World Bank. Also president Erdogan pushing to recount the local Istanbul elections after suffering a defeat to the opposition party by 25,000 votes puts pressure on the Lira as investors look at the impartiality in Turkey. The main Turkish index from the Borse Istanbul, BIST100, started the week at 98,978 and closed down -3% at 95,976.