Monthly Market Summary

August 2018


The strong earnings report and better than expected economic data prevailed over the trade war hysteria in the markets. A year on year increase of 6.6% in retail sales, a strengthening labour market with 213,000 new non-farm jobs created. Also, a stable Purchasing Managers Index (PMI), indicated rising consumer sentiment and business confidence in the US economy. The GDP rose by 4.1% in the second quarter, with inflation sitting at 2.9% which was above the Fed’s target and in the process making a case for rate hikes. The second quarter earning figures came out very strong with a majority of the companies beating estimates. Over the month the S&P gained 111.34 points (+4.12%), the Dow was up by +5.19% (1253.66 points), and the benchmark US Small Cap Index Russell 2000 was up by 29.07 points, a gain of 1.77%.


BREXIT uncertainty remains the core concern of the UK markets. However,  investors are hopeful that by the end of the year things will be much clearer about the type of BREXIT the UK is likely to have. The recent data suggested that the UK economy is going through a temporary slowdown.  Nevertheless,  the manufacturing and service sectors remain positive with a strong labour market and an unemployment rate below 4.2%. Sterling fell against the USD, aiding the FTSE 100 to end the month up 1.46% (111.83 points), the FTSE 250 gained 46.9 points (+ 0.23%).


The Eurozone composite PMI dropped marginally to 54.3 from 54.9 in June. German manufacturing PMI showed increased activity despite the risk of increased tariffs on automobiles. The ECB kept the rates unchanged and signalled to maintain them until the first half of 2019 at least. Trade tensions weakened in the latter part of the month after the EU President visited Washington and held talks with the US Trade representatives. Euro Stoxx 50 over the month gained 4.4% (149.93 points), and EURO ended the month at 1.17 (+0.2%) against USD.

Emerging Markets

The Chinese markets were the most affected as both US and China intensified their trade dispute, with new tariffs imposed and threats to add further tariffs. Signs are building that the economic expansion is losing steam—from weakening investment in factories to anaemic household consumption and rising corporate defaults. China’s central bank has been pumping funds into the country’s financial system. The Yuan fell -2.9% against USD over the course of the month.

India remained the second-best performer for the month of July 2018, with a return of 6%. Brazil was the best performer with returns of 9%.

Source: JP Morgan Asset Management, Wall Street Journal and CNBC News


Monthly Market Summary

July 2018

The Trade war between the US and China intensified in June with President Trump announcing the updated list of Chinese goods worth $ 50 billion, that will be subjected to a 25 per cent tariff with effect from July 6. The Chinese side reacted by issuing a revised list of US goods worth $ 50 billion that will have a tariff imposed. The list targeted agriculture products particularly from places that supported President Trump during the US presidential primary elections. President Trump responded to this by threatening to impose additional 10% tariffs for another $ 200 billion worth of Chinese imports.

Equity funds suffered one of their largest weekly outflows during the last week of June, with $29.7 billion pulled out of risky assets over concerns of rising US protectionism and its likely effect on the global economy.

US equity funds lost $24.2 billion as per the EPFR data, outflows from emerging market (EM) equity and debt funds also increased as investors exited EM assets, citing the currency risks from a strengthening US dollar. Around $18 billion worth of funds exited EM equity and debt funds in June following an $8 billion outflow in May.

Around $ 3.9 billion was pulled out of European equity, and a net inflow of $ 2.6 billion was reported into Japanese Equity funds.

Among equity sectors, Technology has been the most resilient to trade worries, although threats to curb Chinese investment in US tech firms hit their stock value. Tech continued to draw the strongest inflows with $0.8 billion and was on a year-to-date total of $19 billion inflows while $9 billion has left all other sector funds.

In fixed income, investment-grade bond funds saw strong inflows of $2.9 billion as investors fled to safety, while high-yield bond funds saw outflows for an eighth consecutive week, with $2 billion removed.

The UK employment figures came out positive, as the latest figures signalled falling unemployment with falling wage growth. The Bank of England postponed its rate hikes and decided to leave the interest rate levels unchanged. The FTSE 100 index lost 41 points over the month and ended at 7636.93. The weakness in sterling against the dollar helped FTSE produce local currency gains as the foreign currency revenues were repatriated.

The concerns of an exit of Italy from Eurozone eased after the new government showed signs of stability. The most important development in Eurozone was the decision of the ECB to curtail its bond-buying program after September. The Euro Stoxx 50 ended the month at 3395.6, down 25 points (0.74%) over the month.

The Chinese markets over the month were troubled by the trade war concerns with the Shanghai Composite and the Hang Seng Index ending the month at 2847.42 (-7.69%) and 28955.1 (-5.22%) respectively. The Indian market remained under pressure from rising oil prices and the resulting fall in rupee against the USD, over the month the BSE Sensex ended at 35423.5, up 0.14% from last month.

Source: / JP Morgan Asset Management


Monthly Market Summary

June 2018

The month of May started with a positive for the US and global markets as President Trump delayed the controversial trade tariffs for 30-days, giving EU and other allies time to negotiate a trade deal with the US. A high-level delegation was also sent to China for trade talks easing the concerns of a trade war.  However, over the month, the markets witnessed intermittent bouts of corrections as the concerns over US-China trade war remained one of the important driving forces for Wall Street. The Asian Pacific remained susceptible to the trade concerns with the China-related stocks being the most affected. Another major source of volatility for Asian Pacific Equity was the geopolitical uncertainty arising from the cancellation of the planned North Korean Talks in Singapore.

Meanwhile, the US Inflation hit the Feds 2% target, the rise in prices was attributed to the economic expansion. The Fed signalled on growing confidence in inflation leading to the strong possibility of rate hikes in June.  The threat of inflation and the possible rate hikes by the Fed prompted selling in the fixed income market keeping the yields near the highs of 3%, the fed however held the interest rates steady. The US announced USD 1 billion increase per month in its short-term borrowings, the increase in the long-term borrowing was limited to USD 1 billion per quarter leading to a narrowing differential between the 2-year and 10-year bond yields, a signal of yield curve flattening. The yield differential further narrowed by the end of the month as market speculations rose over trade war and monetary policy outlook intensified.

The FTSE 100 was propelled by the rising oil prices to its three-month high in the second week of May with British Petroleum and Royal Dutch Shell accounting for about half of the month’s gain.

The political risk emanating from Italy continued to roil the European markets over the month, with an estimated outflow of USD 4.5 bn from the Western European markets. However, the concerns eased by the end of the month as policymakers in Rome began talks to form a coalition government and avoid snap elections.

The Oil started the month by reaching a four year high of $ 75 a barrel, the prices were driven up by rising demand due to global economic boom and cuts in supply from Open and Russia, in addition to the geopolitical risk arising from the brewing conflict in middle east putting the Iran nuclear deal in jeopardy. However, the prices recovered in the later days of months as reports came out suggesting that the OPEC may wind down production cuts in response to the prospect of reduced supplies from Venezuela and Iran.

The UK pound after reaching the post – Brexit peak last month, took a 3.36% plunge in May, the fall was prompted by the weaker than expected manufacturing data and a weaker outlook for UK inflation. The UK inflation data in the 3rd week of May showed a fall in UK inflation to 2.4%; this was the second consecutive month of drop in inflation.

The US dollar in the early days on May saw a reversal from the weaker outlook as the fears of narrowing policy differentials between the US and Europe, and the US and Japan dissipated as the central banks of Europe and Japan softened their stance on monetary policies.


Monthly Market Summary

May 2018

The Global Market participants expected a jittery start in the month of April over the mounting fears of a prolonged trade war between the two major economic powerhouses namely the US and China. However, later in the month, IMF published its global trade report which showed global trade is poised to hit an annual growth rate of 3.9% this year which will be the highest since 2011. Over the course of the month, the trade war fears eased and most of the major indices recovered the losses made in the early days of the month. Oil prices continued to climb as the Brent Crude breached the $ 72 per barrel mark over tensions in the Middle East arising from the threats from Israel and the US which may jeopardize the hard-earned nuclear deal with Iran Another major highlight from April was the detente between the two Koreas after the recent visit of the North Korean leader to South Korea, the meeting with his counterpart in South Korea and a promise of shutting down the nuclear program. This thaw in relations between the two nations has alleviated considerably one the major geopolitical risk the markets faced until now. The UK markets posted stellar gains for April. The BREXIT transitional deal eased some of the uncertainty in the markets, in addition to that the wage growth rate surpassed the inflation rate and the unemployment rate fell to 4.2% indicating a strong labour market. The FTSE 100 gained 6.42% (452 points) ending the month at 7,509.3, and the FTSE 250 was up 4.24% (824.58 points) over the same period. The weakness in GBP favoured the FTSE 100 over FTSE 250 as the former includes multinationals with revenue receipts in multiple currencies. Despite the easing of trade and geopolitical tensions, the US markets ended the month of April marginally up or flat. The S&P, Dow Jones and NASDAQ were up by 0.55% (14.6 points), 0.36% (86.55 points) and 0.71% (50.1 points) respectively. The dismal performance of the US major indices was down to the poor macro figures namely the widening fiscal deficit in February to $ 57.6 bn (expected to be above a trillion dollars in 2020) and the slower than expected job growth of 2.3%, with only 103,000 jobs created in the month. The NASDAQ fared better than the broad market index as the technology sector experienced an uptick in the sales and profits. The European markets continued to face geopolitical risks arising from a weaker government in Germany and the resulting absence of leadership in the EU affairs with the uncertainty over the imposition of US import tariffs. The ECB’s decision to hold the interest rates steady and the positive sentiment as depicted by the demand should support increased economic activity in the upcoming months. The Euro Stoxx 50 gained 5.60% (187.5 points), while other major indexes namely CAC 40 and DAX gained 7% and 4% respectively. The markets in Asian Pacific far east were buoyed by the new bonhomie between the two Koreas with the Japanese Nikkei 225 gained 4.57% (1026.3 points) over the month and Hang Seng up by 2.94% (880.57 points). However, the Shanghai Composite remained under pressure from the Trade war concerns and lost -2.76% (87.55 points). Despite the weakness in Rupee against the US Dollar, the Indian market supported by a robust earnings report was indeed the best performer in April among the emerging markets with the BSE Sensex up 6.45% (2129.49 points).

Monthly Market Summary

April 2018

The volatility in March was mostly driven by the concerns of a Trade War between the two biggest economies in the world, namely the US and China. The month started with the hawkish tweets from Donald Trump signalling possible tariffs on imports, although the rhetoric toned down with the Europe managing to get an exemption from tariffs. The markets feared that any retaliatory measure from the Chinese side will dampen the trade and the hard-won growth momentum in the economy. The threat of the trade war became real when the Trump administration announced the tariffs on steel imports from China.

The market sentiment was further dampened by Fed’s interest rate hike, which was the first of its four-planned rate hikes this year and the sixth since it began raising interest rates in December 2015. The Technology sector took a major dip due to the risk of increased regulations after Facebook was found to have been involved in a user-data controversy linked to Donald Trump’s presidential campaign in 2016.

Summing it all up, markets in the month of March followed the high volatility trend it inherited from February 2018, depicting the phenomenon of “Volatility Clustering” which essentially means a period of high volatility is followed by another period of high volatility till a reversal or an inflection point is reached.

The major US markets ended the month in red with the Dow Jones Industrial Average losing 3.68 per cent, while the Standard & Poor’s 500 Index sliding 2.74 per cent and the NASDAQ Composite falling 2.90.

In addition to the global trade concerns, the BREXIT woes continue to haunt the UK markets. The FTSE 100 & FTSE 250 ended the month in negative 2.42% and negative 1.15% respectively.

Despite stronger earnings data in Europe, the markets succumbed to the pressure of increased tariffs and the resulting trade war. The STOXX 50 lost nearly 2% over the month.

The Nikkei 225 lost 2.04% this month, the Japanese bourse came under pressure from a stronger yen and global trade fears. It is also a major concern among investors that Japan can be the next target of US trade tariffs. The major emerging markets moved in concert with the developed markets, with the HangSeng losing 1.26%, the Shanghai Composite down by 2.05% and BSE Sensex fell by 3.43% in March.

Despite the increase in rates by the Fed, the Treasury yields fell in March due to the revised labour report, weaker than expected inflation data and the increased buying activity in the bond markets prompted by the volatility in equity markets as the investors looked for safer assets in the market. The 10-yr Treasury Yield ended the month at 2.741%, down 0.131 percentage points.


Monthly Market Summary

March 2018

Fears of Trade War drive stocks down as the key US share indexes came under pressure in early hours of trading on Friday as President Trump in his tweets indicated of his plan to impose tariffs on steel and aluminium. The news pulled down the global markets amid the possibilities of retaliation from China and major economies and the consequent slowdown in global trade. The Dow finished up 0.3% as most of the losses were recovered in the later hours of trading. Regardless of the late recovery, the indexes witnessed one of the worst weeks this year. The DJIA, S&P 500 and NASDAQ posted their weekly figures of -3%, -2% and -1.1% respectively. The threat of an international trade war also sparked concerns in the fixed income markets as the companies may look to pass on the rise in cost from tariffs to the consumers. It is causing an increase in the expected inflation, leading to a rise in the yield of the 10 – year Treasury Note to 2.855% on Friday from 2.802% on Thursday. The Japanese equity was worst affected by the trade concerns as the steel industry and automakers bearing the brunt of the trade restrictions. The Nikkei ended the week at 21,181.64, a loss of 3.25 percent against the week earlier. The large-cap TOPIX Index fell 2.96 percent for the week and declined 6.01 percent YTD. The FTSE 100 index ended at 7,069.90, the lowest close since Dec. 23, 2016, according to FactSet data. No sector gained ground, and the basic materials group fell the most. For the week, the London benchmark fell 2.4%, a second straight weekly decline. The political risk in conjunction with the weaker economic prospects arising from inflation and a lack of real wage growth and the issues related to BREXIT has resulted in mounting pessimism towards UK equities. Emerging markets are likely to pay a heavy price as the proposed trade restriction will result in higher commodity prices in the international markets and the consequent fall in the local currencies. Emerging markets have witnessed an outflow of $5.8 billion of funds from non-resident investors last month, a report from the Institute of International Finance shows.