The MSCI Pacific Index was down 1.0% in the week to 27 November.
In Japan, the TOPIX slipped 0.5%. Japan’s manufacturing sector expanded in November at its fastest pace since March 2014, according to a Nikkei-Markit survey, while the unemployment rate for October fell to a 20-year low of 3.1%.
Hong Kong’s Hang Seng dropped 3.0% as sentiment was hit by concerns over probes from regulators into Chinese brokerages, which weighed on financial stocks in particular.
Elsewhere, Australia’s resource-heavy All Ordinaries slipped 1.0%. Miners experienced weakness amid a sharp fall in commodity prices, in particular copper and iron ore.
Singapore’s Straits Times fell 2.0%, as GDP data painted a mixed picture. Singapore’s economy grew more than expected in the third quarter, but the government lowered its growth outlook for this year and next.
In a week of light trading around the Thanksgiving holiday, Wall Street stocks were little changed. The Dow Jones slipped 0.1%, the broad S&P 500 was flat and the technology-focused Nasdaq gained 0.4%. US stock exchanges were closed on Thursday and opened for only half a day on Friday, with volumes thin all week.
Geopolitical tensions continued to hold back markets as the shooting down of a Russian fighter jet by Turkey added to nervousness over developments in the Middle East following the recent terrorist attacks in Paris.
Investors also remained focused on the upcoming Federal Reserve meeting, at which interest rates are now widely expected to rise for the first time since the Financial Crisis. San Francisco Fed president John Williams said there was a “strong case” for raising rates in December, barring any unexpected shocks in economic data.
Last week’s releases did little to change the picture of a gradually improving US economy. Orders for durable goods—items meant to last at least three years—climbed 3% in October from the previous month, ahead of expectations, with a big gain in the volatile aircraft category and small improvements elsewhere.
Personal spending was little changed in October, undershooting forecasts, but new claims for unemployment benefits fell more than expected, pointing to a strengthening labour market and therefore a healthy consumer outlook.
The holiday shopping season got underway last week with the Black Friday weekend of cut-price deals. Preliminary indications from US retailers suggested a mixed start, with in-store sales declining but online purchases rising. Data from analytics firm RetailNext suggested overall sales on Thanksgiving and Black Friday combined were slightly down on last year. However, many stores began discounting goods earlier in the month this year, making comparisons difficult.
The MSCI Europe Index rose 0.7% in the week ended 27 November.
Most major European markets ended the week higher. Italy’s FTSE MIB climbed 2.0%, Germany’s DAX rose 1.6%, the UK’s FTSE 100 was up 0.6%, the French CAC 40 gained 0.4% and the Spanish IBEX 35 was 0.2% higher. Sweden’s OMX 30 was flat on the week, while Switzerland’s SPI fell 0.1%.
With Wall Street closed Thursday and only open for a half-day session Friday due to the Thanksgiving holiday, European investors focused on potential policy action from the European Central Bank (ECB).
The next ECB policy board meeting will be held on 3 December, with current market expectations looking for Mario Draghi to announce a EUR 600 billion increase in the ECB’s quantitative easing (QE) programme in an effort to support flagging growth and bring inflation back up to target.
The ECB is also expected to reduce the deposit rate that it pays to commercial banks further into negative territory from its current level of -0.2%. Essentially, the ECB is charging banks to look after their cash deposits in an effort to encourage them to lend, with the cost for the banks set to rise the more negative the deposit rate goes.
With the Federal Reserve expected to announce a rise in US interest rates later in December, monetary policy divergence between the world’s two major global trading blocs is being reflected in the bond and currency markets.
On the currency markets, the euro extended its fall against the US dollar, dropping below USD 1.06 to a seven-month low. European exporters should gain from the weaker currency, which boosts international competitiveness, while higher import prices should help lift inflation. Eurozone short-term government bond yields also moved lower, with the German two-year yield falling 2 basis points in the week to -0.41%.
Meanwhile, in the UK, the government’s autumn budget statement gained a muted reaction from investors. Chancellor of the exchequer George Osborne announced a slight loosening in fiscal policy for 2016; however, the positive impact on UK growth is likely to be small relative to the influence of global economic factors and the expected rise in UK interest rates over the next 12 months.
Global Emerging Markets
The MSCI Emerging Markets Index was down 1.5% in the week ending 27 November, underperforming the MSCI World Index, as tensions between Turkey and Russia weighed on sentiment.
Turkey’s BIST 100 and Russia’s RTS were among the worst performers, falling 6.3% and 3.6% respectively, following Turkey’s shooting down of a Russian fighter jet along the Syrian border. Both the Turkish lira and the Russian rouble fell significantly vs. the US dollar.
Elsewhere in emerging Europe, Hungary’s BUX rose 2.5%, while the Polish WIG and Czech PX-50 dropped 2.9% and 1.6% respectively.
The MSCI China was down 3.5% following reports that some of the country’s leading brokerage firms were facing regulatory investigations. Sentiment was also dampened by data from the National Bureau of Statistics showing that total industrial profits fell 4.6% in October, leading to a sharp fall for industrial and information technology stocks.
South Korea’s Kospi rose 2.0%, while Taiwan’s Taiex ended the week 0.8% lower. Taiwan’s economy contracted in the third quarter, as manufacturing weakness weighed on domestic demand.
India’s Sensex was up 1.0%, as sentiment was buoyed by hopes that the nationwide goods and services tax would be approved. The new tax is expected to lower the prices of goods, benefiting both consumers and manufacturers, and would help simplify the current tax regime.
In Latin America, Brazil’s Bovespa fell 4.7%, with sharp losses in the middle of week following further arrests in relation to the ongoing Petrobras scandal. Mexico’s IPC slipped 1.4%, after data confirmed that Mexico’s trade deficit widened to USD 1.44 billion in October, partly due to lower crude oil prices.
Bonds & Currency
Diverging expectations for US and eurozone monetary policy was reflected in the performance of short-term government bonds. The two-year US Treasury note was up 2 basis points over the week, while the German two-year yield fell 2bps.
*Source: J.P. Morgan Asset Management
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