Market Insights

Instreet Market & Economic Commentary and Opinion

The growing acceptance of China in international capital markets faces a watershed moment this coming week with a decision due out on whether a batch of stocks listed on its $7 trillion domestic equity market will be included in the world's dominant emerging markets stock index – MSCI.

Instreet Market & Economic Commentary & Opinion

Popular opinion may be on a downer, but equity markets continue to rise with the US, Germany and the UK all reaching record highs last week. Even Japan closed out above 20,000, which hasn’t been seen since Dec 2015.

Instreet Market & Economic Commentary & Opinion

Offshore equity markets have recovered quickly since last Wednesday’s sell-off which was prompted by growing fears that US President Trump would be impeached. Markets aren’t concerned with the impeachment itself, but rather what would happen to the re-inflation policy if Trump wasn’t President anymore.

The Aussie dollar is likely to remain under pressure for the time being as commodity prices continue to fall and Australia’s interest rate premium narrows.
The price of Australia’s main commodity exports (namely iron ore and coal) have a strong influence on the value of the Australian dollar. Recently, iron ore prices have fallen to about US$65 a tonne – a big drop compared to the US$90 a tonne they reached late last year and earlier this year.
Even when pricing hit US$90, the Australian dollar didn’t get much above US$0.75. This doesn’t paint a strengthening outlook for the Australian Dollar in the current environment.

After a nail-biting campaign, the first-round of voting in the French Presidential election took place over the weekend with centrist Emmanuel Macron and euro-sceptic Marine Le Pen winning the most votes. The outcome stunned the established political parties which have no candidates running for the second round of voting (due to take place on May 7). The French people will now be choosing between two radically different visions for the country.
If Macron wins, he will be the first independent President of the 5th Republic in France. This would delight France’s EU partners and reassure investors. Indeed, the Euro initial response was to rise 2% to €1.0935 against the dollar— a five-month high.

Instreet Market & Economic Insights

Investors took to safe assets last week in response to the US missile strikes on a Syrian air base. It was a predictable response, with the Japanese Yen, gold, and highly-rated government bonds initially rallying as stock markets dropped.

Get ready for a fun week ahead as the UK is set to trigger Article 50 which will bring Brexit another step closer to reality. Article 50 starts the countdown to the UK’s exit as they enter two years of negotiations with the EU.
We doubt the notification itself will trigger any sharp falls, but markets will no doubt be keeping a close eye on the negotiations over the coming months.
The euro-zone Composite PMI for March, which was released last Friday, suggest Q1 might have been the strongest for the European economy in two years. The rise in the headline index from 56.0 to 56.7 was stronger than the consensus forecast – which predicted a slight fall to 55.8.
The PMI number is usually highly correlated with quarterly GDP growth, and hence suggests a GDP gain of about 0.6% for the quarter. This faster growth provides potential for earnings per share (EPS) growth in Europe to rise faster than in the US.

Rates look almost certain to rise in the US this week after the release of strong February data. This included:
• Non-farm payrolls jumped 235,000, well above the consensus forecast of 190,000.
• The unemployment rate fell from 4.8% to 4.7%
• Average hourly earnings increased by 0.2% month on month and the annual growth rate rebounded to 2.8%.
We’ve been keeping a close eye on US rates, concerned that riskier assets could be hit hard if rates go up quicker than expected. Currently, however, I don't think higher rates will spell disaster for risky assets, as monetary policy is set to be tightened further against the backdrop of stronger US and global economies.

The market is awash with talk this week of the 11th consecutive rise of the Dow Jones Industrial Average Index (DJIA). The last time the bellwether indices of US equities had a longer "winning streak" was in 1987.
In case you missed it – the DJIA closed at a record high for the 11th trading day in a row on Friday. During this time, the index climbed around 3%, which has left it roughly 13% higher than it was when Trump was elected and about 26% higher than this time last year.
But it’s not just the DJIA that’s powering ahead. Global equity markets are also posting record highs, including the FTSE All-World share index hitting a record intraday high of 295.96 on Thursday. Since the US election in November, it has risen more than 8% as bulls have taken heart from promises made by US President Donald Trump regarding fiscal stimulus, infrastructure spending and deregulation.

Instreet Market & Economic Commentary and Opinion

Equity markets, the US Dollar and commodities all trended higher last week buoyed by revived optimism around US President Trump, coupled with strong US earnings reports.