Global equities rose moderately by 1.67% over the week ending 6 January 2017 as markets entered the New Year on a positive note. For developed markets, US's S&P 500 Index posted the strongest gains at 1.51%, supported by upbeat economic data. Japan's Nikkei 225 Index also saw similar gains of 1.38%, while Europe's Stoxx 600 Index was not too far behind at 0.95%. Asia and emerging markets also turned in excellent performances, indicated by the MSCI Asia ex Japan Index and the MSCI Emerging Markets Index, by ending the week with gains of 2.34% and 1.99% respectively.
China's offshore equity market, represented by the HSML 100 Index, posted an increase of 1.70%, while its offshore counterparts, represented by the Shanghai Composite Index and the Shanghai Shenzhen CSI 300 Index, also rose by 1.59% and 1.09% respectively. Over in East Asia, Hong Kong's HSI Index and Taiwan's TWSE Index rose 2.08% and 2.24% respectively. Comparatively, Korea's KOSPI Index lagged slightly behind with a more modest gain of 1.53%. Singapore emerged the best performer amongst Southeast Asian markets with gains of 3.26%, while Malaysia's KLCI Index, Thailand's SET Index and Indonesia's JCI Index followed closely behind, surging 2.06%, 2.02% and 2.16% respectively. Other emerging markets also did comparatively well, with Russia's RTSI$ Index and Brazil's Bovespa Index recording gains of 1.57% and 3.18% respectively. Contrastingly, India's SENSEX Index was the only equity market under our coverage to have a tepid gain of 0.04% from the previous week.
This week, market observers can look forward to the US releasing advance estimates for December's retail sales, preliminary estimates of University of Michigan's Consumer Sentiment Index, and data for initial jobless claims. In Europe, unemployment rate for the month of November 2016 remain unchanged from previous’ 9.8%, in-line with market expectations. Industrial production was up by 2.2% compared to October’s 1.6%, beating consensus estimates of 1.9%. Meanwhile in East Asia, China’ Consumer Price Index (CPI) came in lower at 2.1% for the month of December, sliding below forecast of 2.2% and preceding value of 2.3%. China’s Producer Price Index (PPI) increased 5.5% in December, higher than that of 4.6% from consensus estimates and 3.3% from previous value. Lastly, investors can anticipate the release of November retail sales in Singapore.
[All returns in MYR terms unless otherwise stated]
Investors may refer to Market Valuation As Of 6 January 2017 for more details.
US: December's ISM Manufacturing Rises Above Expectations, Labour Market Remains Robust
December's reading of the Institute for Supply Management (ISM) manufacturing PMI came in at 54.7, up from 53.2 registered in November and beating the consensus estimate of a 53.8 reading. A breakdown of the data's various components revealed that new orders, new export orders and employment increased for the month. Additionally, the ISM Prices Paid Index surged to 65.5 (from a prior 54.5), suggesting that the prices for materials that manufacturers pay rose the highest since June 2011. With manufacturing momentum regaining despite a stronger USD, improving global demand could help to support manufacturers in the US moving forward.
The US economy added 156,000 jobs in the month of December, down from November's upward-revised 204,000 increase and was below the consensus forecast of 175,000. There was more hiring in education and healthcare, with a gain of 70,000 jobs, while leisure and hospitality businesses added 24,000 jobs to the economy. For the full year, total job gains in 2016 totalled 2.157 million, the seventh consecutive year of increase. While December's non-farm payrolls fell short of expectations, the average hourly earnings in December rose an encouraging 2.9% year-on-year, up from the previous month's 2.5%, and is currently at its highest level since May 2009. The participation rate rose to 62.7% from a downward-revised 62.6%, while unemployment rate ticked up slightly to 4.7% from November's 4.6%. With labour market conditions remaining robust and wage pressures building, domestic consumption in the US remains supported, helping to add to GDP and supporting the case for further US rate hikes this year.
UK: Markit Manufacturing PMI In December Strongest Since June 2014
The UK's Markit Manufacturing PMI came in at a 56.1 reading for the month of December, increasing from an upward-revised 53.6 in November and smashing the consensus estimate of a 53.3 reading. December's better-than-expected increase is the highest reading recorded since June 2014, and marks the fifth consecutive month of expansion. The new orders component of the index also rose the highest since June 2014. The decline in Sterling's exchange rate has helped boost competitiveness of British manufacturers, but has also raised costs and inflation. UK companies have taken in their stride despite the uncertainty surrounding Brexit, helping to support the GDP in Britain thus far.
Japan: December Composite PMI Signals Economic Momentum
The Nikkei Japan Composite PMI reading for December 2016 came in at 52.8 from 52.0 in the previous month. The improvement was led by better results in both the services and manufacturing sectors with readings of 52.3 and 52.4, compared to the prior month readings of 51.8 and 51.9 respectively. The manufacturing expansion hit a 12-month high due to an increase in production and new work inflows. Similarly, the services sector growth is at an 11-month high, largely credited to a boost in the number of customers and store openings for Japanese services firms. Things are looking rosy ahead for Japan's economy as the data suggests that overall GDP growth will pick up in the final quarter of 2016.
China: Business Activity Improves Into The New Year
Both manufacturers and services providers in China saw increases in business activities as the Caixin China PMI Composite reading for December further expanded to 53.5, beating the previous month's figure of 52.9. The manufacturing industry reported the strongest improvement in four years — as indicated by the Caixin China Manufacturing PMI — which picked up from a reading of 50.9 in November to 51.9 at the end of 2016. Similarly, the services sector reported the strongest rise in activity for 17 months in December, with the Caixin China Services PMI rising from a reading of 53.1 to 53.4. The pick-up in China's secondary and tertiary sectors has add to the view that the world's second largest economy is entering 2017 on a stronger footing, as it continues its gradual shift from an export-based economy to one that is led by consumption.
Hong Kong: Retail Sales Decline Extends Through November
Hong Kong's retail sales volume fell -5.6% year-on-year in November 2016, down from the previous month's -2.7% and was below the consensus estimate of -3.0%. The retail sales value figure for November also fell in a similar fashion, as it recorded a decrease of -5.5% year-on-year, below market expectations for a -3.2% decline and was also down from the prior month's figure of -2.9%. As the retail scene is dependent on inbound tourism, the industry's return to growth was hampered by the impact of reduced tourist spending during the month. Yet, the Nikkei Hong Kong PMI for December shed a positive light for the economy as a whole. With the PMI reading coming in at 50.3 (an improvement over the previous month's 49.5 reading) and steadying growth in China's economy, business conditions in Hong Kong may see some stabilisation at the turn of 2017.
Singapore: GDP Growth Likely To Remain Modest In Near Term
Based on advance estimates, Singapore's economy surprised economists with a 1.8% year-on-year expansion in 4Q 2016, and a 1.8% growth rate in 2016. In 4Q 2016, the construction sector contracted by -2.8% year-on-year, while the services sector continued to be weak, with a tepid 0.6% year-on-year growth in the quarter. Contrastingly, the manufacturing sector grew by a laudable 6.5% year-on-year, largely buoyed by strong growth in the electronics and biomedical clusters. The growth of the biomedical cluster remains volatile and difficult to predict, and the transport engineering and general manufacturing clusters are likely to continue to contract in the near term. Therefore, it is unlikely that the manufacturing sector's growth can be sustained in the short term. At this juncture, it remains probable that Singapore's GDP growth continues to be modest in the foreseeable future.