News & Analysis

Weekly Summary – Positive Political Developments

septiembre 6, 2019

By Deepta Bolaky
 @DeeptaGOMarkets

Weekly Summary

It was a busy week charged with geopolitical developments and key economic data releases. As the week comes to an end, we note that there is a positive sentiment prevailing in the financial markets compared to the risk-off mood at the start of the week.

Wall Street saw a strong recovery and is paving the way to recoup losses made in July and August.

Lower Geopolitical Risks 

Italy: The New Italian Coalition Sworn-In 

The President, Sergio Mattarella, gave his support to the new coalition between the centre-left Democratic party and the anti-establishment Five Star Movement. Even though there are doubts that the coalition will last given the material differences over migration and security, Italy avoided a political crisis which brought some relief to the European markets.

The government was sworn into office on Thursday and is seeking better ties with Europe. The MSCI Europe Index rose to 130.09 as political setbacks in Europe eased.

Source: Bloomberg Terminal

United Kingdom: Fresh vote on an early election next week

The UK Parliament has returned from its summer recess on Tuesday after the new Prime Minister requested to prorogue Parliament and threatened to call an early election. Members of the House of Commons voted to kick-start the process of delaying Brexit and we also saw Boris Johnson losing a vote to hold an early election. The Prime Minister faces more headwinds following his brother, Jo Johnson’s resignation.

As of writing, we note that the government announced a fresh vote on an early election next week before the Parliament is scheduled to be prorogued.

While European stocks bolstered higher, UK markets struggled to maintain the bid tone. The FTSE100 slipped on Thursday as stocks traded ex-dividend and also took a hit by a surge in Sterling. 

Source: Bloomberg Terminal 

Hong Kong: Carrie Lam offers to withdraw the controversial extradition bill

After 13 weeks of constant protests which turned more violent over the weeks, Carrie Lam offers to withdraw the controversial extradition bill. The move failed to fully satisfy the population as the mass demonstrations have now turned into a movement against Hong Kong’s government and the brutality of the police. 

It took weeks for the leader to from suspension to complete withdrawal and may not be enough to address the discontent in Hong Kong.

However, the move brought some relief to the Asian markets and also contributed to the upbeat mood across the globe. The Heng Seng Index rose by nearly 900 points or 3.5% in the last three days to 26,515.

Source: Bloomberg Terminal

Trade Negotiations

Following the imposition of new tariffs over the weekend and a lack of developments on the start of the week, market participants cheered the news that both the US and China agreed to meet in October to resume trade talks.

Wall Street rallied on easing geopolitical risks. After a massive sell-off in July and August, investors recovered a semblance of normality and pushed riskier assets higher. Major US equity indices have recouped a large portion of the losses made recently.

The first week of September was much more upbeat than expected. After a dreadful month of August, market participants appear to have shrugged off the negative sentiment and moving on with cautious.

Economic Data

Amid a slew of economic data releases, manufacturing activities were the primary drivers of the price action in the markets.

  • China’s NBS Manufacturing PMI revived fears of global slowdown driven by the escalation of the trade war.
  • The US ISM Manufacturing PMI was also below expectations at 49.1 which reflects the first contraction in three years.
  • However, Caixin PMI figures were more upbeat and helped to calm investors’ nerves.

As the week comes to an end, the focus is now on Nonfarm Payrolls and Canadian job numbers. 

The ADP Employment change shows growth of 195k in August and is normally viewed as a preview for the government’s nonfarm payrolls report. The report shows that it has added more jobs in four months despite the slowdown in manufacturing and global weakness. Labour remains healthy and investors look for Friday’s numbers for signs to gauge if the trade war has spread to the US economy. 

Major currencies were mostly higher against the US dollar, however, the greenback is gathering strength ahead of the Nonfarm Payrolls.

Monday, 09 September 2019
Indicative Index Dividends
Dividends are in Points
ASX200 WS30 US500 US2000 NDX100 CAC40 STOXX50
0.72 5.561 0.236 0.107 0 0 0
ESP35 ITA40 FTSE100 DAX30 HK50 JP225 INDIA50
0 0 0 0 12.018 0 0

  

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