Global Equities Extend Gains

Weekly Report - 22/10/2017

Investor Optimism Riding High as Risk Assets Rise


The 30-year anniversary of the infamous “Black Monday” came and went without generating much anxiety in equity markets. US stocks shook-off increased geopolitical risk to prolong an extraordinary bull run that is closing in on its ninth year. The second week of third quarter earnings saw financials top Wall Street expectations as higher interest rates boded well for lending margins.

Last Week

The S&P 500 rose for a sixth straight week on upbeat macroeconomic data and solid quarterly earnings. US industrial production rebounded 0.30% in September, while weekly jobless claims came in lower than forecast. To round out this data, investor hopes for a tax reform agreement before the end of the year received a boost after a fractious Senate passed the fiscal 2018 budget resolution. In other news, negotiators from the United States, Mexico and Canada extended talks to discuss adjustments to the North American Free Trade Agreement into the first quarter of 2018.

The power struggle between Madrid and Catalonia also dominated headlines this week.  In a drastic crackdown, Spanish Prime Minister Mariano Rajoy announced plans to fire the Catalan president Carles Puigdemont and force fresh elections on the separatist-led region. Financial markets were relatively muted in their reaction, with most assets already discounting this outcome. Meanwhile, in Asia, the Chinese Communist Party Congress began in Beijing with an inaugural address by President Xi Jinping. The reform agenda took a back seat as President Xi emphasized the need for national rejuvenation in a meeting that will give him a second five-year term as head of the party. On the data front, China recorded third quarter annualized growth of 6.80%, marginally below the 6.90% pace registered a quarter earlier.


The Week Ahead

The critical risk event on next week’s calendar will be the highly-anticipated monetary policy announcement from the European Central Bank. EURUSD has been stuck in a range ahead of the meeting as markets ponder whether it will be a hawkish or a dovish taper. President Mario Draghi has been hinting for months about the need to make changes to the asset purchase program. The other central bank in spotlight will be the Bank of Canada, which is due to meet on Wednesday to determine whether it should lift interest rates for a third time this year. Following two quarter point hikes in as many meetings, the BoC is forecast to hold steady at 1.00% in October.

Growth figures from the US and UK will also be in focus, with the US economy likely to have expanded at a robust annualized rate of 2.60% during the third quarter while the British economy is projected to have advanced by a sluggish 0.30% quarter-over-quarter in the three months to September. Across the globe in Japan, Sunday’s snap general election looks set to give Prime Minister Shinzo Abe a decisive mandate and a third consecutive term in government. However, an Abe win is unlikely to be positive for the Yen as it would signal a sustained period of loose monetary and fiscal policies.


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