Global Markets – November 2018

Kuwait: December 6, 2018

Global markets managed to end November on a positive note albeit in a still volatile environment. Markets which drifted lower most of the month were boosted during the last week by the comments of Fed Chairman J. Powell before the Economic Club of New York in which he said interest rates “remain just below the broad range of estimates of the level that would be neutral for the economy”. Markets took this as a sign that the tightening cycle is close to an end and the three rate hikes previously expected in 2019 are now less likely. This comes after his comments back in October in which he suggested that the Fed was a “long way” from neutral and which many analysts blame for the market rout last month.

The MSCI All Countries World Index managed to gain 1.30% during November narrowing its year to date losses to 4.32%. US indices returned to positive performance for the year with the S&P 500 up 3.24% after a 1.79% return in November, while the Dow Jones Industrial Average registered 1.68% for the month bringing its year-to-date performance to 3.31%. The tech-heavy NASDAQ underperformed with a monthly gain of 0.34%. Treasury yields retreated during the month with the 10-year Bonds closing the month at 3.0% after retesting last month high of 3.25% in early November. The Markit manufacturing PMI slowed marginally in November to 55.4 from 55.7 for the previous month, while the Services PMI declined to 54.4 from 54.8 over the same period.

The Stoxx Europe 600 Index declined by 1.14% during November bringing its losses since the beginning of the year to 8.14%. The French CAC40 declined by 1.76% dragged down by the ongoing riots in France, while the German Dax retreated by 1.66%. For the year, the DAX is down 12.85% while the CAD40 is down 5.81%. Europe’s third quarter Gross Domestic Product remained stable at 1.7% on a preliminary basis. Consumer confidence retreated further in November to -3.9 from -2.7 registered in October. The preliminary Markit Manufacturing and Services PMIs weakened to 51.5 and 53.1 in November from 52 and 53.7.

The ongoing volatility in global markets in addition to the upcoming vote on the Brexit deal on the 11th of December added to the rout in UK equities. The FTSE 100 declined by 2.07% in November to bring its year-to-date performance to a negative 9.20%. The Gfk Consumer Confidence declined to a new low of -13 in November compared to a reading of -10 in October and a consensus estimate of -11 while the Markit manufacturing PMI rebounded to 53.1 in November from 51.1 for the previous month.

After a nearly 10% decline in October, Japan’s Nikkei 225 Index managed to regain some ground advancing 1.96% in November but still falling 1.82% short of breaking even for the year. Third quarter annualized GDP declined by a preliminary 1.2% against estimates of a decline of 1.0% while the GDP deflator recorded -0.3% for the same period. The Nikkei manufacturing PMI showed a slight decline as it registered 52.2 for November compared to a revised 52.9 for the October. The Consumer Confidence Index retreated marginally in November to 42.9 against a reading of 43.0 in October. Unemployment, on the other hand, inched higher to 2.4% against estimates of 2.3% and a previous reading in September of 2.3%.

Following the IMF downgrade, the OECD said that trade tensions and higher interest rates are slowing down the global economy. The organization lowered its outlook for global GDP to 3.5% in 2019 from a previous projection of 3.7%. It said the slowdown would be worst in emerging markets that will see capital outflows as interest rates in the US continue to rise. China is expected to grow at the slowest rate in 30 years at 6.0% down from a current 6.6% mainly driven by the impact of US tariffs. Despite the outlook downgrade, which was discounted in October, emerging markets had a breather in the last week of November after the dovish interest rate comments of the Fed chairman. The MSCI EM staged a robust performance during the last week of November to close the month up 4.06% boosted mainly by a solid performance in India, Turkey, Brazil, and Russia as well other Asian markets. The MSCI Asia ex-Japan was up 5.24% in November. In China, however, the picture was not as bright. After spending most of the month in positive territory, the Shanghai Composite closed down 0.56% on signs that there might be additional tariffs imposed by the US on China.

The slide in oil which started in October intensified during November. Brent lost 22.2% of its value to close the month at $58.7/b, while WTI dipped briefly below $50.0/b before closing the month at $50.93. Fears of excess supply dominated the market ahead of the OPEC meeting in December and the G20 summit in Buenos Aires, especially that Russia seemed reluctant to join any move to cut back production. The Russian position, however, became clearer after the end of the month when President Putin announced an agreement with Saudi Arabian Crown Prince to extend output cuts in a meeting on the sidelines of the G-20 meeting in Argentina.

In light of the heightened volatility in global markets and the slide in oil prices, the performance of GCC markets was mostly negative. The S&P GCC Composite declined by 2.04% in November dragged by a negative performance in Saudi, which retreated by 2.58%, and the UAE, where Dubai and Abu Dhabi declined by 4.16% and 2.69% respectively. Kuwait was the best performer in the GCC for November as the Boursa Kuwait All Share Index edged up by 1.33%, Bahrain came second with 1.07%, while Qatar recorded a marginal increase of 0.62% for November after having added almost 5% the previous month. In the Broader MENA region, the S&P Pan Arab Index was down 1.69% and Egypt’s EGX 30 up marginally by 0.52%.