Global Markets Commentary – August 2019
Kuwait: October 08, 2019
Kuwait,7 October: GCC markets ended the month of September in the red as the S&P GCC Composite declined by 1.20% despite the fact that Saudi Arabia managed to recover the losses incurred post the September 14 Aramco attacks. The Saudi market, which was down as much 3.4% after the attacks, managed to recover steadily during the second half of the month and closed September up by 0.90%. The GCC index, however, was weighed down by Abu Dhabi and Kuwait, in addition to generally marginal gains elsewhere in the Gulf. Abu Dhabi’s ADX General Index declined by 2.10% and Kuwait’s All Share Index was 4.42% down for September, while Bahrain Bourse All Share Index dropped by 1.08%. The top GCC performer for the month was Qatar which added 1.31%, followed by Saudi Arabia with a gain of 0.90% and Dubai which was up by 0.81%. In the wider MENA region, the S&P Pan Arab declined by 0.87% as Egypt declined by 3.89% for month as political tension escalated towards the end of the month.
Global Markets recovered in tandem during September on hopes that at least an interim trade deal between the US and China would be reached amid de-escalation between the two countries. Markets were also supported by accommodative moves from both the ECB and the Fed as both central banks cut rates in mid-September. The MSCI AC World Index advanced by 1.91% during the month but was still down 0.53% for the third quarter. Similarly, the MSCI EM index recorded a monthly advance of 1.69% while remaining negative for the quarter at 5.11%.
Trade tensions remain the most potent market mover especially that their effect on both the global and US economies is starting to become increasingly visible. The third estimate of the US GDP for the second quarter was stable at 2.0%, the markets, however, were surprised by a sudden drop in manufacturing activity for September. The ISM Manufacturing PMI slid to 47.8 in September from 49.1 for the previous month, compared to a consensus estimate of it increasing to 50.1. This makes it the lowest reading for the manufacturing activity gauge since June 2009, when the recession following the global financial crisis ended. During the month, the Fed cut its target rate by 25 basis points to a range of 1.75% to 2.0% citing implications of global development for the economic outlook and muted inflation pressures. Indeed, inflation is still below the 2.0% symmetrical target of the Fed, despite a slight rebound in Core Personal Consumption Expenditures (PCE) in August which brought it up to 1.80% from a revised reading of 1.70% in July (revised up from 1.60%).
Major US Indices closed in the green for September but below their mid-month high. The S&P 500 and the Dow Industrial Average (DJI) were up 1.72% and 1.95% respectively to close the third quarter with narrow gains of 1.2% for each. The Nasdaq, however, was barely positive for September at 0.46% after declining by close to 2.4% from its intra-month closing high of 8,194.47. For the quarter, the index performance was negative at -0.09%. In the Treasury market, the 10-year yield recovered strongly during the first two weeks of the month in the run-up to the FOMC decision and reached a high of 1.90% on September 13, only to retreat back to 1.68% by month-end. Similarly, the 2-year yield climbed from 1.50% at the end of August to intra-month high of 1.79% before retreating back to 1.56% as at the end of September.
In Europe, the ECB returned to stimulus with a 10 basis points cut that took its interest rates deeper into negative territory at -0.5%. The ECB further announced that it would restart its bond and other financial instruments purchasing program to the tune of €20 billion per month starting November. The central bank attributed the slowdown in Europe to the prevailing weakness of international trade and an environment of prolonged global uncertainty. The ECB cut its European GDP forecast for 2019 to 1.1% from 1.2% and for 2020 from 1.4% to 1.2%. European manufacturing activity deteriorated further during September with the Markit Manufacturing PMI slipping to 45.7 in September down from 47.0 in August. Weakness in the German economy weight down significantly. The German Markit manufacturing PMI surprised on the downside, declining to 41.7 in September against expectations of 44.0. German GDP had contracted by 0.1% for the second quarter down from 0.4% for the first quarter of 2019. In the meantime, European capital markets fared well during the month. The Stoxx Europe 600 was up 3.6% to close the quarter at a positive 2.15%. The German DAX and French CAC40 added 4.09% and 3.60% respectively to close the quarter at a slightly positive 0.24% for the DAX and 2.51% for the CAC40.
Markets in the UK followed the general global trend with the FTSE 100 Index gaining 2.79%, which was not enough to offset last month’s steep losses causing the index to close the third quarter in the red at -0.23%. The Gfk Consumer Confidence Index improved marginally but was still deep in negative territory in September at -12. Inflation surprised on the downside as the CPI dropped to 1.70% year-on-year in August down from 2.1% in July. Manufacturing activity, on the other hand, showed a slight improvement as the Markit Manufacturing PMI for September recorded 48.3 up from 47.4 in August while it was expected to drop further to 47.0.
Emerging markets performance was mixed while slightly underperforming global peers. The MSCI EM index added 1.69%, while the MSCI Asia-ex-Japan index added 1.44%. They are both still negative for the quarter though at 5.11% and 5.34% respectively. Notable gainers in the EM space included Turkey’s Borsa Istanbul 100 index with an 8.60% advance and India’s Nifty50 index with 4.09%. They were followed by Brazil’s Ibovespa Index which added 3.57% and Taiwan Stock Exchange with a gain of 1.99%.