Kuwait: November 2, 2016

The U.S. economy grew at its fastest pace in two years in the third quarter due to a surge in exports and a rebound in inventory investment.

Most global equities performed well in October, except for US equities, down 1.8% as measured by the S&P 500, partly due to the uncertainty around the upcoming presidential election. Developed stocks were the winners of the month, with UK, European and Japanese stocks all gaining. Commodities finished lower for the month dragged by declines in Brent oil, falling 4.2% after gaining over 3% during the month. Gold also finished the month lower, declining 2.9%.

US third quarter GDP rose 2.9% beating expectations of 2.5% after averaging just 1.1% over the first half of the year. The U.S. economy grew at its fastest pace in two years in the third quarter due to a surge in exports and a rebound in inventory investment. This stronger than expected economic growth could smooth the path for the U.S. Federal Reserve to raise interest rates in December.

The US ISM manufacturing and nonmanufacturing indexes for September released in October reversed weak August readings; the ISM Manufacturing Index came in higher than expected at 51.5, pointing to growth in US manufacturing. The ISM nonmanufacturing index jumped by 5.7 points to 57.1, hitting an 11-month high. The September Nonfarm Payroll came in below estimates with 156,000 new jobs added to the US economy in September. US unemployment ticked up to 5%, slightly higher than anticipated. US retail sales in September were up 0.6% month on month, on the back of stronger auto sales. Consumer confidence slipped in October, falling by more than expected to 98.6. Durable goods orders fell 0.1% in September, while August orders were revised higher. Durable goods orders data suggested some slight improvement in the fourth quarter for equipment spending after four consecutive quarters of declines. US housing data looked more promising as both pending and new home sales picked up in September following disappointing August numbers.

Japan posted a trade surplus of 498 billion yen in September, compared with a deficit of 18.7 billion yen in August.

The UK Manufacturing Purchasing Managers Index (PMI) for September continues to improve reaching 55.4 up from 53.3 in August. UK inflation increased to 1% year on year, the highest rate of change in prices since 2014, which may well soon be above the Bank of England’s 2% inflation target. The British economy decelerated slightly to 0.5% in the third quarter when compared to the 0.7% in the second quarter. Despite the slowdown, the figures are stronger than the 0.3%, expected by economists.

UK equities continued their gains in October rising by around 1% as measured by FTSE 100. The gain in UK stocks was mainly driven by investors’ belief that a weaker currency could help UK exporters increase their revenue from abroad. The British pound fell to a 31-year low against the dollar during the month of October after U.K. Prime Minister, Theresa May set a date to begin exiting the EU.

The European Central Bank left all its monetary policy tools unchanged and mentioned that it intended to run the asset purchase programs until the end of March 2017. The Eurozone continued to demonstrate growth in the manufacturing sector in October; the preliminary manufacturing PMI number for the month came in at 53.3 compared to 52.6 in September. The service sector PMI further adds to this growth reaching 53.5 compared to 52.2.

NBK Capital Monthly Global Market Commentary Chart 1

European equities in October gained 1.8% on increased economic activity in the euro area.

Japan posted a trade surplus of 498 billion yen in September, compared with a deficit of 18.7 billion yen in August. Exports fell 6.9% from a year earlier, but were better than the forecasted decline of 10.4%. Meanwhile, a preliminary survey of factory managers showed a fifth straight month of improvement in manufacturing sentiment and the measure for output rose for the first time since January. Japan’s consumer prices fell for the seventh straight month and household spending slumped again in September. The unemployment rate dropped to 3% in September, equal to the lowest since 1995.

Japanese stocks performed significantly well, as measured by the Nikkei 225, gaining 5.9%.

Chinese exports dropped 5.6% in September on a year on year basis in local currency terms versus expectations of a 2.5% growth; Chinese imports, on the other hand, increased by 2.2% on a year on year basis in local currency terms. China appears to be demonstrating stable growth with real GDP growing at 6.7% on a year on year basis in the third quarter, unchanged from Q2.

The Chinese market was up 3.2% for the month, outperforming most emerging market equities.

The GCC equity market index rebounded from last month’s decline with gains of around 3%, driven by the Saudi equity markets, which increased by 6.9%, while Dubai and Abu Dhabi stocks ended the month down by 4.1% and 3.9% respectively. The slide in UAE equities could be attributed to weaker than expected earnings. Saudi stocks gained on increased investor optimism as Saudi Arabia sold $17.5 billion in international sovereign bonds, the largest in emerging market history, adding liquidity to the local market and boosting payments to contractors.