A Global Market Outbreak

Global markets were beaten last week as worries over the China-US trade war and a spike in US bond yields alongside a cautious approach to earnings season wounded optimism. All three major U.S. stocks indexes posted their biggest weekly percentage declines since March 23rd. In addition, benchmark 10-year Treasury yields reached 3.261%, a level last seen in May 2011. The 30-year yield hit a 4 year high of 3.446%. This week however, Japan’s Nikkei started the week by slumping 1.8% as carmaker shares hit 13-month lows. That was after Washington said it will consider a currency manipulation provision in any future trade deal with Japan and China.

In UK, the FTSE 100 followed other equity markets, dropping to its lowest point since April. The UK market selloff was also bolstered by a rising pound on hopes London and Brussels were close to a breakthrough, easing fears of a no-deal Brexit from the bloc next March. However, an EU summit on Wednesday pierced optimism on Monday amid a stalemate over the post-Brexit status of Britain's land border with Ireland. Europe's STOXX 600 also dipped to a 22-month low in early trading, as investors steadied themselves for the summit.

In Eurozone news, Chancellor Angela Merkel's Bavarian allies suffered their worst election result since 1950. Italy also looked to approve a budget that sees an increase in the country's deficit, a move potentially drawing criticism from the EU.

The mood on Monday was also soured by a jump in oil prices, as tensions rose between the West and Saudi Arabia over the disappearance of journalist Jamal Khashoggi. This added to concerns over economic growth, with investors scurrying to traditional safe haven assets like the Japanese and Swiss currencies, as well as gold. At one point, Brent crude rose 1.3% to $81.50 per barrel. Investors fear if oil prices keep rising, so will inflation and in turn hurt weak borrowers.

UK Data for the week ahead

Date Time (BST) Data Forecast Previous Read
Tuesday 16th October 09:30am Average Earnings Index 3m/y 2.6% 2.6%
    Unemployment Rate 4.0% 4.0%
    Claimant Count Change 4.5K 8.7K
  2:15pm MPC Member Cunliffe Speaks    
Wednesday 17th October 09:30am CPI y/y 2.6% 2.7%
    Core CPI y/y 2.0% 2.1%
    PPI Input y/y 0.9% 0.5%
    PPI Output y/y 0.2% 0.2%
    RPI y/y 3.5% 3.5%
    HPI y/y 3.5% 3.1%
    FPC Meeting Minutes    
  2:30pm CB Leading Index m/m   -0.2%
  6:00pm MPC Member Broadbent Speaks    
Thursday 18th October 09:30am Retail Sales m/m -0.3% 0.3%
Friday 19th October 09:30am Public Sector Net Borrowing 4.6B 5.9B
  4:30pm BoE Gov Carney Speaks    

© Akif SH. Din, AGORA-direct Limited, A Global Market Outbreak, 15/10/2018.

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