Equities Extend Gains Despite Possible US Government Shutdown January 23, 2018
Equities Extend Gains Despite Possible US Government Shutdown
Author : iFAST Research Team

Equities Extend Gains Despite Possible US Government Shutdown

Global equity markets extended their gains from the week before, with the MSCI AC World Index inching 0.13% higher over the week ended 19 January 2018. Despite a short week given the Martin Luther King Jr. holiday on Monday as well as the growing likelihood of the US government shutdown (which occurred in the end), the US equity market, as represented by the S&P 500 Index, ended the week 0.86% higher (USD terms). In MYR terms, however, US equity market was down by -0.14%, while Europe’s Stoxx 600 Index and Japan’s Nikkei 225 Index were up 0.41% and 0.22% gain respectively.

Greater weekly gains were witnessed over in emerging and Asian equity markets, with the MSCI Emerging Market and MSCI Asia ex Japan indices seeing a 1.01% and 0.70% gain over the week respectively. East Asian equities enjoyed the bulk of the gains over the week, with China’s offshore equity market, as represented by the HSML 100 Index, being the best-performing equity market under our coverage as it saw a 2.49% week-on-week gain. Meanwhile, China’s onshore equity markets, as represented by the Shanghai Composite and the CSI 300 indices, rose a smaller 1.64% and 1.35% over the week. Hong Kong’s HSI and Taiwan’s TWSE Index too, rose by a decent 1.72% and 2.39% respectively over the week. Meanwhile, Korea’s KOSPI Index lagged, with a tepid -0.40% decline over the week.

Over in South East Asia, Indonesia’s JCI led the pack with its 0.92% gain. Malaysia’s KLCI, Singapore’s STI, and Thailand’s SET Index which gained 0.34%, 0.31% respectively while the Thailand’s SET Index bucked the trend and saw a 0.43% retreat over the week. Over in other emerging markets, Brazil’s Bovespa Index and India’s SENSEX Index gained 1.60% and 1.23% respectively over the week. On the other hand, Russia’s RTSI$ Index saw a -0.22% fall over the week amid a -1.45% decline in WTI oil prices to USD 63.37 per barrel when the week ended.

Economic Calendar:

In the coming week, the US is slated to release a slew of economic data, including the advance estimates of its 4Q 2017 GDP, as well as December 2017’s durable goods orders, new home sales and existing home sales. The nation will also be releasing the preliminary estimates of its January manufacturing PMI figures. Over in the Eurozone, January’s consumer confidence and manufacturing PMI data will be released on Tuesday and Wednesday respectively, while Germany will be reporting its IFO and ZEW business survey findings for January. Outside of the Eurozone, the UK will be reporting the advance estimates of its 4Q 2017 GDP and Japan will be releasing its CPI and manufacturing PMI data for the month of January. This week, investors will also be on the lookout for Singapore’s December 2017 CPI and industrial production data.

[All returns in MYR terms unless otherwise stated]

Investors may refer to Market Valuation As Of 22 January 2018 for more details.

US: January’s Empire State Survey Suggests Positive Outlook

The New York Fed’s Empire State Manufacturing Survey Index came in at 17.7 for January 2017, down from December 2017’s upward-revised 19.6 reading and falling short of the consensus forecast (19.0). Components such as new orders and number of employees fell in January (possibly affected by near term weather effects), while prices paid and inventory rose. The reading for the six-month business conditions came in at 48.6 as compared to a prior 46.3. The New York Fed reported that firms are optimistic about business conditions, and capital spending plans remain robust, supporting other data points which suggest that the outlook of US manufacturing remains supported.

UK: December’s Headline Inflation In Line With Expectations

Across the Atlantic in Northeast Europe, the Office for National Statistics (ONS) in London reported that inflation in the UK rose 3.0% year-on-year in December 2017, in line with the consensus forecast and slowing from a prior 3.1% year-on-year rise (which was the highest year-on-year increase since March 2012). On a month-on-month basis, CPI rose by 0.4%, up from a prior 0.3% gain. Core CPI, which excludes energy and food articles, rose 2.5% year-on-year, slowing from a prior 2.7% year-on-year increase. A technical reweighting of airfares in the inflation basket affected the computation of the headline number this time round, with the ONS mentioning that it is too early to say if the move is “the start of any longer-term reduction in the rate.” While policy-makers at the Bank of England (BOE) have communicated that rate hikes are on the table in order to contain imported price pressures from the weak Sterling, it remains to be seen if tighter monetary could be maintained as uncertainty surrounding the current divorce from the European Union (EU) still plagues corporate Britain.

China: First Uptick In Full Year Economic Growth Since 2011

Over in East Asia, the National Bureau of Statistics of China reported that the Chinese economy expanded 6.8% year-on-year for the final quarter of 2017, on par with 3Q 2017’s growth and was above market expectations of a 6.7% growth. While the Chinese economy had not surpassed market expectations by a significant margin, it had surpassed expectations for 3 out of the 4 quarters in 2017, suggesting that concerns over a hard landing in the world’s second largest economy had been overblown. For the full year 2017, the Chinese economy is expected to have grown 6.9%, up from 2016’s 6.7% growth, and this is the first time in 7 years for which the economy has seen an acceleration in growth momentum. Economic releases over the recent months have been mixed—growth in retail sales had slowed on a year-on-year basis, while industrial production and manufacturing PMI data suggested continued factory momentum despite the government’s pollution crackdown and debt curbs. The economic growth model in China is changing, with a move away from a hard number to a focus on sustainable high quality growth. It is likely growth remains supported over the coming quarters and current market expectations are for the economy to expand by 6.5% for the full year 2018.

Russia: November’s Trade Surplus At 8-Month High

For the month of November 2017, Russia’s trade surplus rose to USD 11.5 billion from October’s USD 9.8 billion surplus and was above consensus expectations of a USD 9.7 billion surplus. November’s surplus was the nation’s highest in 8 months. On a year-on-year basis, the nation’s trade surplus had risen 28.4% year-on-year, supported by the greater 25.2% increase in exports compared to the 23.5% increase in imports. On the back of continued global economic expansion over the coming quarters, it is likely nation sees continued growth in the external demand for its goods and services. Nonetheless, its extended oil cut agreement with OPEC could weigh on its oil production in the near term and in turn weigh on the pace of growth in exports.

Singapore: Slower Growth In December’s NODX Amid Weaker Electronics Exports

Singapore’s Non-Oil Domestic Exports (NODX) rose 3.1% year-on-year in December 2017, down from prior month’s 9.1% increase and was lower than expectations of a 8.6% increase. NODX growth in December was largely supported by the 6.8% increase in non-electronics exports while electronics exports declined -5.3%. Through 2017, December is the second month for which electronics exports had declined on a year-on-year basis, the first being in September, when electronics exports fell -8.0%. NODX to half of the city’s top 10 destinations had declined on a year-on-year basis in December, compared to 2 out of the top 10 destinations in November 2017. It is likely growth in the global semiconductor industry moderates over the coming quarters, consequently resulting in a slower pace of NODX expansion compared to that witnessed in mid-2017. Nonetheless, continued upswing in global trade is likely to support the city’s external demand at large.

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