Weekly Market Update

08/10/2018

The political landscape continued to overshadow markets as both equities and bonds struggled over the week. However, investors took focus upon US treasuries, as yields rose higher following strong US economic data. This was further enhanced by the message that US government interest payments had surpassed total economic output from Belgium in the fiscal year ending Sept. 30, underscoring the growing burden of America’s debt load amid wider budget deficits and climbing borrowing costs.

After last week’s news of the Italian’s government’s intention to increase its budget deficit target to 2.4 per cent, Italian government bonds sold off sharply. However, after days of losses, a measure of stability was restored when the government conceded some ground; watering down the 2020 and 2021 deficit targets to 2.2 per cent and 2.0 per cent respectively. However, there will likely be more confrontation and volatility before the final plans are submitted for EU approval mid-October.

Japanese carmaker Nissan became the latest companies to warn against the perils of a hard Brexit. Nissan described its manufacturing operation in the North East of England as a European investment based in the UK and fretted about possible supply chain difficulties after 29 March. However, Unilever scrapped its plans for relocating its headquarters following shareholder disapproval.

In emerging markets, Turkey’s consumer inflation climbed to one of the highest levels since President Recep Tayyip Erdogan came to power. The inflation rate rose for a sixth month to 24.5 per cent in September year-on-year, above all expectations. While in South African President Cyril Ramaphosa announced a package of reforms which he said would create 275,000 more jobs a year, in a bid to bring down unemployment from more than 25 per cent.

Oil head for the longest run of weekly gains since January on concern that higher Saudi and Russian output may not ease a supply crunch as impending US sanctions squeeze Iranian exports. This has once again sparked speculation that the oil price could hit $100 a barrel. Saudi Arabia said its oil output had reached record levels of 10.7m barrels a day as the country ups production ahead of the second wave of US sanctions against Iran next month. The IEA suggested that plastics and other petrochemical products would drive global oil demand, offsetting slower consumption of motor fuel.

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