Global equity markets edged lower over the week ended 9 June 2017 on heightened geopolitical uncertainty, with the MSCI AC World Index falling by -0.91%. The S&P 500 Index fell by -0.68%, while the Nikkei 225 Index retreated -1.21%. As the UK’s Conservatives unexpectedly lost their majority in a bruising snap election that has resulted in a hung parliament, the Stoxx 600 Index also took a tumble by -1.56%. While developed markets had a dismal showing, Asian and emerging markets posted mixed return over the week, with the MSCI Asia ex Japan Index rising 0.41% while the MSCI Emerging Markets Index falling -0.08% respectively.
Over in East Asia, Taiwan, Hong Kong and South Korea saw their respective equity indices fell -0.03%, -0.06% and -0.42% respectively. Similarly, China's HSML 100 Index retrenched -0.38% over the week, while its onshore equity market, as represented by the Shanghai Composite Index and the Shanghai Shenzhen CSI 300 Index, fare much better with gains of 1.58% and 2.45% respectively. In Southeast Asia, Malaysia’s KLCI Index managed to clock gains of 0.67% while Singapore’s Straits Times Index and Thailand's SET Index posted loss of -0.14% and -0.48% respectively. Meanwhile, Indonesia’s JCI Index shed -1.52% over the week. In other emerging markets, India’s SENSEX Index, Russia’s RTSI$ Index and Brazil’s Bovespa Index incurred losses of -0.56%, -0.81% and -1.91%. A surprising surge in crude oil stockpiles saw oil prices slide a further -4.21% to end the week at USD 45.83 per barrel.
The US will be releasing an array of economic data this week, including May’s inflation, retail sales, as well as industrial production. Over in Europe, Germany's ZEW expectation of economic growth is due this week, together with April’s industrial production for the Eurozone. Market participants can also look forward to India’s inflation and industrial production reports. Back at home, investors will be keeping a close eye on Singapore's April retail sales and May non-oil domestic exports (NODX) for clues on the sustainability of its recent economic rebound.
[All returns in MYR terms unless otherwise stated]
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Market Valuation As Of 09 June 2017 for more details.
US: ISM Non-Manufacturing Index In May Slightly Below Expectations
The US Institute of Supply Management’s (ISM) Non-Manufacturing Index came in at 56.9 for the month of May, down from a prior 57.5 and falling short of the consensus estimate of a 57.1 reading. A look into the data revealed that both the new orders and new export orders’ components fell in the month of May, after registering continued increases year-to-date. Additionally, backlogs rose alongside inventory sentiment. On the other hand, the employment reading surged to 57.8, which is the highest reading seen since July 2015, possibly suggesting that the recent weaker-than-expected headline reading may not persist. Despite fading expectations of fiscal stimulus or some sort of corporate tax reform, the ISM figures indicate that both manufacturing and services in the US remains robust, which should continue to support economic growth moving forward.
Eurozone: Economic Growth At Fastest In Two Years
The release of Eurozone’s final GDP figures last week pointed towards improving aggregate economic conditions in the region. Its 1Q 2017 GDP was revised upward to 1.9% year-on-year, higher than the initial forecast of 1.7% and was also the fastest in two years. On a seasonally adjusted quarter-on-quarter basis, the economy expanded by 0.6%, also an upward revision from the preliminary forecast of 0.5%. The improved readings reflected faster growth rates in France and Italy, with domestic demand the main driver, particularly investment, which was up by 6.0% year-on-year. With recent PMI readings suggesting a further pick-up in business activity, the Eurozone should be able to maintain its growth momentum in the second quarter, although inflation remains subdued.
Japan: Sharp Downward Revision In Final GDP Figure
Japan’s economy expanded by an annualised 1.0% quarter-on-quarter in 1Q 2017, a sharp downward revision from an earlier estimate of 2.2%. The latest set of data also fell short of market expectations for a 2.4% growth rate. On a quarter-on-quarter basis, Japan’s GDP was revised downward from 0.5% to 0.3%. While capital expenditures saw an upward revision from 0.2% quarter-on-quarter to 0.6%, it was offset by downgrades in private consumption, from 0.4% quarter-on-quarter to 0.3%, as well as private inventories, which shaved 0.1 percentage points off growth, due to lower stockpiles of crude oil than initially estimated. Despite the severe downgrade, Japan’s economy is on its fifth consecutive quarter of growth, its longest growth streak since 2006, as the economy remains underpinned by stronger exports and firmer domestic demand.
China: May Trade Data Defies Expectations
China turned in a stronger-than-expected trade report in May 2017, with both exports and imports topping market expectations. Exports rose by 15.5% year-on-year in CNY terms, after a 14.3% growth in the previous month and was above the consensus estimate of 13.5%. Imports increased by 22.1%, accelerating from the 18.6% growth seen in April and was above market expectations for a 16.1% increase. While May’s trade balance came in at CNY 281.6 billion, lower than an anticipated CNY 324.1 billion, it was an improvement from the CNY 262.3 billion surplus recorded in the previous month. The latest set of data has certainly defied expectations for China’s economy to deteriorate, especially in light of the recent credit downgrade by Moody’s, suggesting that the world’s second largest economy may be on a firmer footing despite an expected tightening by the central bank and a cooling property market.
Russia: May’s Core Inflation Extends Downward Trend
Russia’s consumer prices rose 4.1% year-on-year in May 2017, slightly higher than market expectations for a 4.0% inflation rate and on par with the prior month’s inflation rate. The prices of food products, non-food products, and service goods rose 4.1%, 4.4% and 4.0% year-on-year respectively. Meanwhile, core inflation continued to dip, coming in at 3.8% year-on-year, down from the prior month’s 4.1%. While inflation risks remain given continued volatility in global commodity markets, the downward trend in inflation has provided good room for further rate cuts, which would likely aid growth in the recovering economy. As of 7 June 2017, expectations are for the central bank to slash rates by -25 basis points to 9.00% in the coming monetary policy meeting on 16 June 2017 and for the economy to grow 1.2% in 2017.
Malaysia: Exports See Continued Double-Digit Growth
Malaysia’s exports continued its double-digit growth in April 2017, with a 20.6% increase year-on-year, mainly due to the increased demand from China, Japan, EU and US, as shipments to these nations expanded by 50.6%, 44.7%, 26.5% and 11% respectively. Exports were also partially lifted by the weakening Ringgit on a year-on-year basis. On top of that, higher commodity prices, as well as the 22.2% year-on-year expansion of the electrical and electronics (E&E) sector, were the main drivers behind exports growth. As global technology continues its rapid growth, further improvements in the E&E sector can be expected, and that should bode well for Malaysia’s exports moving forward.