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05.11.2019

Weekly market overview: Stocks refresh highs, dollar on the defensive after FOMC decision

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Global stocks at fresh highs amid economic optimism

  • Global stocks at fresh highs amid economic optimism
  • Factory activity in China expanded at its fastest pace in more than two years
  • The S&P 500 took out its previous record high
  • The U.S. economy added 128,000 jobs, more than expected
  • The Fed delivered the third consecutive rate cut within its easing cycle
  • Dollar on the back foot against the majors after a rate cut
  • Oil finished unchanged after a volatile week


Asian equities

After a relatively steady rise during the week, Asian stock markets registered three-month highs on Friday, as investors cheered an unexpectedly strong Chinese manufacturing activity data. The manufacturing Caixin PMI came in at 51.7, above expectations of 51.0. As such, factory activity in China expanded at its fastest pace in more than two years in October. The private survey contrasted with the official report which showed the manufacturing activity in China shrank for the sixth straight month in October. On the other hand, renewed concerns over the potential for a long-term trade deal between China and the U.S somehow capped the upside potential in stocks.

Anyway, MSCI’s broadest index of Asia-Pacific shares (outside Japan) reversed early losses to touch fresh three-month highs. The Shanghai composite advanced nearly 1% to about 2,958.20. Hong Kong’s Hang Seng added 0.65% and Seoul’s Kospi rose 0.77%. The Nikkei underperformed, ending the day down 0.33%. Shares of gaming firm Nintendo surged 7.46%, after the company announced a second-quarter profit that came in better than expected.

US equities

In the US, the S&P 500 took out its July record earlier in the week after Trump said the U.S. is ahead of schedule to sign part of the trade deal. The index was up for a fourth straight week and added 1.5%. Also, the S&P 500 stands about 12% off the June lows. In general, corporate earnings, the FOMC meeting, and fresh economic updates helped to lift investor sentiment. On Wednesday, the Federal Reserve delivered the third consecutive rate cut within its easing cycle.

U.S. stocks gained about 1% on Friday, as the S&P 500 and Nasdaq Composite started November with record highs. Investors were encouraged by an upbeat October employment report. The U.S. economy added 128,000 jobs, which exceeded expectations. Besides, results from the two previous months were both revised higher. In individual stocks, Microsoft registered an all-time high after winning a Pentagon contract, and AT&T shares rose following a board shuffle.

Currencies

Despite a decent number of economic updates, it was all about the Federal Reserve’s monetary policy decision, which put the dollar under a fairly strong downside pressure. The central bank cut interest rates another 0.25% and also lowered expectations of an interest rate hike in the near term, citing low inflation. The statement fueled a broad-based risk-on sentiment and caused aggressive losses in the greenback against major rivals.

On the data front, U.S. wholesale inventories for September were down 0.3% m/m and up 5.0% y/y, while the Dallas Fed manufacturing production index fell nine points to 4.5. Meanwhile, Chicago Fed national activity index pointed to slower economic growth in September. The CB consumer confidence index decreased marginally in October to 125.9, down from 126.3 in the previous month. US GDP rose a better-than-expected 1.9% in the third quarter, as well as pending home sales. Chicago PMI weakened further in October to 43.2 from 47.1 in the previous month. The ISM purchasing manufacturing index came in at 48.3%, compared with a 47.8% reading in September. Meanwhile, U.S. job growth slows less than expected in October. Nonfarm payrolls increased by 128,000 jobs last month versus 89,000 expected.

Commodities

Oil prices registered decent gains on Friday but finished the week nearly unchanged. In the end of the trading week, Brent demand picked up amid fresh signs of progress in U.S.-China trade talks and stronger-than-expected Chinese manufacturing activity data. Risk sentiment improved further after U.S. Commerce Secretary Wilbur Ross said the initial phase one trade pact with China is likely to be signed around mid-November.

Earlier in the week, the barrel was nursing losses as U.S. crude oil stockpiles soared 5.7 million barrels in the week to Oct. 25 compared with analysts’ expectations for a 494,000-barrel build. Net U.S. crude imports rose by 1.2 million barrels per day during the period. Meanwhile, gasoline stocks fell by 3 million barrels, to their lowest since Nov. 2017. However, this component failed to ease the downside pressure in the market. Brent registered weekly lows around $59.20 after a rejection from highs marginally above the $62 handle and finished around $61.60, nearly flat in the weekly charts.