Equities Weekly: Global Markets Rally On [27 October 2017] October 31, 2017
Equities Weekly: Global Markets Rally On [27 October 2017]
Author : iFAST Research Team

Equities Weekly: GLOBAL MARKETS RALLY ON [27 October 2017]

The rally continues: global equity markets extended the previous week’s gains, with the MSCI AC World Index rising 0.25% over the week. The US equity market notched another week of gains, with the S&P 500 advancing 0.62%. Meanwhile, the Nikkei 225 Index ended the week with a strong gain of 2.43% following Prime Minister Shinzo Abe’s election victory, while the Stoxx 600 Index fell -0.43%. Asian equity markets as a whole edged higher, with the MSCI Asia ex-Japan Index rising 0.07%, while emerging markets receded -0.46%.

Over in East Asia, South Korea, Taiwan and Hong Kong saw their respective equity indices clock gains of 1.19%, 0.48% and 0.20% respectively. China’s offshore equity market, represented by the HSML100 Index, rose 0.36%, while its onshore equity markets, represented by the Shanghai Composite Index and the CSI300 Index, also notched gains of 1.01% and 2.30% respectively. In Southeast Asia, Thailand, Singapore, Indonesia and Malaysia all ended the week with gains of 1.54%, 1.30%, 0.61% and 0.31% respectively. In other emerging markets, India was the best performing equity market under our coverage, with the SENSEX Index surging 2.95%. Meanwhile, Brazil’s Bovespa Index and Russia’s RTSI$ Index fell -2.60% and -1.01% respectively. Crude oil prices rallied 5.13% to end the week at USD 53.90 per barrel.

Economic Calendar:

It’s a data-heavy week for the US, with a flurry of reports scheduled to be released, including September’s personal spending and October’s Conference Board consumer confidence reading. Of particular importance will be October’s non-farm payrolls and September’s core PCE – the Fed’s preferred inflation gauge – as investors look for clues on the timing of the next rate hike. Over in the Eurozone, the bloc’s overall GDP for 3Q 2017, October’s consumer price inflation and September’s unemployment rate are all due. In Asia, Japan’s September industrial production and China’s October official manufacturing and non-manufacturing PMIs are also scheduled for release this week.

[All returns in MYR terms unless otherwise stated]

Investors may refer to Market Valuation As Of 27 October 2017 for more details.

US: Economy Shrugs Off Hurricane Impact With Faster-Than-Expected GDP Growth

The US economy grew faster-than-expected in 3Q 2017, with consumer and business spending remaining strong despite the hurricanes that disrupted economic activity during the quarter. The advance estimate released by the Commerce Department revealed that GDP rose an annualized 3.0% quarter-on-quarter. While it was a slight moderation from the 3.1% seen in 2Q 2017, the latest set of data was above the 2.6% consensus estimate, and above the 3.0% growth target set by President Donald Trump. Consumer spending, which makes up a substantial portion of the economy, grew 2.4% after a 3.3% increase in the previous quarter. Meanwhile, non-residential fixed investment picked up by 3.9%. With back-to-back quarters of 3.0% growth and above, the solid economic performance has reassured market participants that the world’s largest economy is still in decent shape.

Germany: October’s IFO Bests Estimates Unexpectedly

The IFO Institute in Munich reported that business sentiment in Germany rose in the month of October. The IFO business climate survey came in at 116.7 (consensus was for 115.1), up from a prior upward-revised 115.3, while the current assessment survey came in at 124.8, up from a prior upward-revised 123.7 and beating the consensus forecast of 123.5. The IFO expectations index, which measures business confidence for the near-future, also rose, coming in at 109.1 from a prior upward-revised 107.5, besting the consensus estimate of 107.3. Readings have rebounded after taking a breather in September, and are in a similar upswing as other indicators (like PMIs), clearly suggesting expansion. We opine that growth in 2H 17 while likely to be robust, may not be as strong as in the first half of the year.

Japan: Inflation Remains Tepid Despite Ninth Straight Month Of Increase

Japan’s nationwide core consumer price index, which includes energy products but excludes the volatile fresh food prices, stood at 0.7% year-on-year in September 2017, representing the ninth consecutive month of increase. The latest reading was also in line with market expectations. September’s inflation was buoyed by a continued rise in energy costs, which translated into a 6.0% year-on-year increase in the prices of utilities. Excluding the prices of fresh food and energy, however, Japan’s consumer price inflation only edged up by a tepid 0.2% - a far cry from the Bank of Japan’s 2.0% inflation target, leaving the central bank with little room for monetary tightening. Still, Japan’s economic recovery is gaining momentum, and with a tightening labour market, could see inflation trend higher over the longer term.

UK: Preliminary 3Q 17 GDP Estimates In Line With Expectations

Preliminary estimates from the Office of National Statistics (ONS) indicated that the UK economy grew 1.5% year-on-year in the third quarter of 2017, unchanged from a prior 1.5% year-on-year rate in 2Q 17 (in line with consensus estimates). On a quarter-on-quarter basis, the UK economy grew 0.4%, up from a prior 0.3% in 2Q 17 and beating consensus estimates of a 0.3% rise. The data’s components revealed that manufacturing picked up from 2Q 17, while services as a whole came in at a lower year-on-year rate (finance and business services rose while transportation and communication fell). While the Bank of England (BOE) is expected to hike interest rates by the year’s end, we do not think that it is a start of a full-fledged monetary tightening cycle as policy-makers are also focusing on transition plans as Britain prepares to divorce from the European Union (EU), which is making the economic outlook unclear at this juncture.

Singapore: September’s Inflation In Line With Expectations, Industrial Production Continues Robust Performance

Consumer prices in Singapore edged higher by 0.4% year-on-year in September 2017, in line with market expectations and was also on par with August’s inflation rate. Meanwhile, core inflation, which excludes the costs of private road transport and accommodation, rose 1.5% year-on-year, accelerating from the 1.4% increase in the previous month, and was slightly higher than the consensus estimate of 1.4%. Private road transport inflation eased to 2.1% in September from 2.6% the month before, while accommodation costs fell -3.9%, unchanged from the previous month, amid continued softness in the housing rental market. It is likely that consumer prices would see gradual improvement over the coming quarters as the residential property market in Singapore picks up and global demand supports imported inflation.

Industrial production in Singapore rose 14.6% year-on-year in September 2017, slowing from the upward-revised 19.5% increase in the prior month, but still managed to trump the consensus estimate of 10.0%. On a month-on-month seasonally-adjusted basis, however, industrial production declined -0.5%, reversing the 0.6% increase in August. Industrial production rose in all but one of the six clusters, with the electronics cluster registering the highest increase in output of 33.2%, while the precision engineering and chemicals clusters also saw their respective outputs rise by 15.4% and 9.5% respectively. The transport engineering cluster was the only laggard in this month’s report with a -10.8% decline in output. The robust pick-up in industrial production is likely to extend into the coming quarters, with the manufacturing sector potentially a key pillar of Singapore’s economic growth in 4Q 2017.

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