US

On Friday, the biggest revision (since 1999) in Global Industry Classification Standard took place. The new communications sector now include AT&T, Verizon, Century Link, Comcast, 21st Century Fox, Netflix, Walt Disney and, recent entrants, Alphabet and Facebook. Consequently, the Telecom sector which represented 2% of the S&P 500, will now represent 10%. According to Bloomberg data, approx. participants exchanged and traded 10 billion shares to rebalance portfolios.

After a moderate rebound, the dollar index headed for a decline. The US 10-year yield (well above 3%) has now pushed 23 basis points since August. The rise in yield is seen as market participants pricing in two more Federal Reserve interest rate rises in this year itself.

Just hours before a fresh round of tariffs was to set in motion, China called off trade talks with the US on Saturday. $200 billion of Chinese products will be subject to tariffs from 12:00 a.m. Washington time on Monday, on top of the $50 billion in goods already slapped with tariffs actions in the year.

On Friday, US president Donald Trump spoke against the credibility of Christine Blasey Ford’s statements and questioned why she did not take appropriate action when she was assaulted. Christine Blasey Ford claims that Donald Trump’s Supreme Court nominee, Brett Kavanaugh, sexually assaulted her many years back.

A draft by The White House, received by Bloomberg news, outlines a proposal to direct federal antitrust and law enforcement agencies to open probes into the practices of Alphabet Inc.’s Google, Facebook Inc., and other social media companies. Many participants see the recent realignment of Alphabet and Facebook with highly regulated telecom stocks as a sign of upcoming regulations.

As of market close, S&P 500 ended less than 0.1 per cent lower at 2,929, after earlier hitting a record 2,940 91. For the week, the index rose 0.8 per cent. The Dow ended 0.3 per cent higher at 26,727, after peaking at 26,769.16, and rose 2.2 per cent over the five days. But the tech-heavy Nasdaq Composite fell 0.5 per cent, leaving it with a weekly drop 0.3 per cent.

UK

The UK Prime Minister warned that relations with the EU had reached an “impasse” and that she was prepared for Britain to leave the union without a deal drove the pound down on Thursday. Mrs May would also face a big parliamentary test if she abandoned her Chequers plan in favour of a Canada-style free-trade agreement. Following her speech, the sterling fell by 1.5% and traded at $1.3085 by the end of the session. This is the currency’s biggest one day fall since June 9, 2017.

The yield on 10-year gilts fell by 3 basis points on the day to 1.56 per cent in Friday’s trading. Yields move inversely to price. Five-year gilts also rose by 2.5 basis points to 1.15 per cent and 2-year gilts rose by 1bp to 0.797 per cent. The spread between 10-year gilts and German bunds fell 2.5 basis points.

Investor demand for protection against future falls in sterling pushed up hedging costs. Three-month implied volatility for sterling against the dollar rose to its highest level since February 2017.

The Office for National Statistics said on Friday that higher spending and weak tax receipts had pushed borrowing up to £6.8bn in August, £2.4bn more than in August 2017. This is £4.3bn above than what analysts expected. Cumulative borrowing of £17.8bn over the financial year to date, however, remains £7.8bn less than in the same period of 2017 — the lowest since 2002.

According to Shadow Chancellor John McDonnell, the Big Four accounting firms could be broken up under radical plans by the Labour party to overhaul the auditing industry.

Glencore and Anglo American pulled the wider market higher for a third straight day as sterling’s tumble combined with an extended rally for copper. Closing at A 2.4 per cent weekly gain for the FTSE 100 was the best such performance for the index since February. Britain’s 10-year yield fell three basis points to 1.553 percent.

Europe

Stock indices were largely exuberated by the diminishing trade war concern since midweek. Led by utilities and consumers, EuroStoxx 50 closed at 3430.81 after 10 sessions of gains—its longest-lasting uptrend in 10 years. DAX advanced by 2.53% this week with automakers (VW and Daimler) and financials (DB) up. French consumer groups (L’oreal and LVMH) and IT companies contributed to CAC’s 4-day uptick to 5495.17. Italy and Spain also extended uptrend with as well with FTSE MIB and IBEX up by around 2% respectively.

Eurodollar extended by 1.07% and reached highest of 1.1802 despite. EUR/CHF kept steady and closed around 1.1261.

10yr Bund yields remained steady with early-up-then-down, mainly driven by the weaker-than-expected Eurozone PMI. Curve steepened as a result of long end loss with 2s10s up by 0.54%. BTP gains also gave rise to bull steepening in Italian yield curve.

Economic releases in the upcoming week include inflation, economy confidence and employment data. Eurozone CPI estimate (Sep 28th) were expected to reach 2.1% following 2.0% in August.

Rest of the World

Stock market in Asia, Shanghai Stock Exchange Composite rebounded by 2.5% back to August level of 2790, with market digesting Trump’s new threats and China’s retaliation as barely of surprises. Hang Seng experienced a similar growth led by financial sector. NIKKEI 225 had its best week in 2 years and climbed by 3.36% benefiting from solid economic growth with corporates realizing their valuations. TOPIX also gained by 2.5% as its best since 2016 led by banking sector. Limelight is also on IBOVESPA which extended 5.32% showing confidence. Main contributors are materials.

Although Libor-Hibor basis fell under 50bps, HKD experienced largest intraday increase on Friday and rose to its 6-month high as a result of changed expectation towards US rate hike pace and PBOC announcing plan to sell bills in Hong Kong. The signals also supported offshore Yuan with USDCNH down by 0.38% this week.

10yr JGB yield climbed by 15bps this week and led to a rally in 2y10y spread which benefited the banking sector.

Bull mood goes on in oil market. Saudi continued its production cut and Brent increased by 0.96% and approached 80 before Trump criticized OPEC on Twitter. WTI also extended 2.49% to 70.78.

For the week ahead, China’s September PMI index will be critical to stock market and economy confidence. Japan will publish employment and inflation data.

Categories: Markets

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