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Global Markets – October 2018

NBKCapital Global Markets Commentary, latestNews

Kuwait: November 7, 2018

The International Monetary Fund cut its forecast for global growth citing trade tensions that are starting to hurt economic activity worldwide.

October was the worst month for markets so far this year. Global markets tumbled across the world reaching correction territory in many cases. The MSCI All Country World Index declined as much as 9.7% by October 29 before recouping some of its losses in the last two trading sessions of the month to close down 7.6%. Major US indices practically erased their gains for the year with the S&P 500 and the Dow Jones Industrial Average (DJIA) down 6.9% and 5.1% respectively for October.

Markets were spooked by a spike in the yield of 10-year US Treasury bonds which jumped from a little over 3.0% to 3.18% in one day following blowout numbers from the ISM non-Manufacturing index which climbed to a 21-year high of 61.6 in September. This reinforced the market belief that the Fed will maintain its rate hiking policy which would translate into another rate hike before the end of 2018 and up to 3 hikes in 2019. The US GDP Q3 numbers came in at an annualized rate of 3.5% down from 4.2% for Q2 but higher than expectations of 3.3%. The Markit manufacturing PMIs retreated marginally in October to 55.7 from 55.9, while the Markit Services PMI advanced to 54.8 from 54.7 in September.

The International Monetary Fund cut its forecast for global growth citing trade tensions that are starting to hurt economic activity worldwide. The forecast was cut by 0.2% to 3.7% for both 2018 and 2019. It was left unchanged for the US and the Euro area for 2018 but down 0.20% for both the US and China in 2019. The regions that saw the biggest declines were emerging markets and developing Europe including Turkey.

These developments did not help European markets which took a beating in October. The Stoxx Europe 600 Index declined by 5.63% during the month, bringing its yearly losses to 7.08%. Markets in France and Germany followed suit with the DAX shedding 6.53% and the CAC40 7.28%, both underperforming the broader European market. The CAC 40 is now down 4.12% for the year after being up 3.41% for the first 9 months of 2018. The European Central Bank kept rates on hold during the month but confirmed that plans to end monetary easing by year-end remain on track. The Asset purchase program will now go at a pace of 15 billion euros per month until the end of 2018. Consumer confidence remained weak at -2.7 compared to -2.9 at the end of the previous month, whereas the preliminary Markit Manufacturing and Services PMIs weakened to 52 and 53.3 versus 53.2 and 54.7 for the previous month.

Across in the UK, the FTSE 100 Index closed the month of October down 5.09% bringing its losses for the year to 7.28% mainly caused by the turmoil in international markets and continuing Brexit saga. The Gfk Consumer Confidence continued its slide dropping to -10 in October down from -9 in September. The Bank of England kept rates unchanged at 0.75% for the second consecutive time after it last raised rates in August. The Markit Manufacturing PMI declined to 51.1 for October compared to a revised reading of 53.6 for September, while the Services declined to 52.2 from 53.9.

After posting a monthly gain of 5.5% in September, Japan’s Nikkei 225 shed 9.12% of its value in October registering a loss of 3.71% for the first 10 months of 2018. The Nikkei manufacturing PMI ticked higher on a preliminary basis for October recording 53.1 up from 52.5 in September, while the unemployment rate declined to 2.3% against a consensus estimate and previous reading of 2.4%. Consumer confidence declined marginally to 43 from 43.4 in September. Towards the end of the month, the Bank of Japan decided to leave rates unchanged but lowered its expectations of the GDP growth for fiscal 2018/ 2019 to 1.4% from 1.5% as projected in July. It also lowered its core CPI forecast to 0.9% for the current fiscal year down from 1.1% as of July.

The already troubled Emerging markets didn’t do any better in October. The MSCI Emerging Markets Index posted a loss of 8.78% bringing its year to date losses to 17.48%. This decline was mainly driven by big declines in Turkey, Mexico, and Asian markets. The Shanghai Composite’s year-to-date losses reached 21.30% after shedding 7.75% in October, while the Taiwan Stock Exchange returned to negative territory for the year after plunging 10.94% during the month. US-China trade tensions still dominate the scene with the repercussions of an all-out trade war starting to reflect in economic figures and corporate results. In terms of economic data, China’s Caixin Manufacturing PMI increased marginally from 50 to 50.1 for October, while the Caixin Services PMI declined to 50.8 down from 53.1 the previous month.

Oil also had a dismal month in October. Brent closed down 8.76% for October but had declined more than 16% from peak to trough during the month. Market volatility, coupled with confirmations from Saudi and other major oil producers that they are willing and capable to keep the market well supplied amid the looming Iran sanctions, added on price pressures. This, in addition to concerns on the demand side after the IMF downgraded global economic growth, contributed greatly to the decline.

Despite the global market turmoil, GCC equities managed to end the month of October in the green supported by the solid performance of the Qatar Stock exchange which ended the month up 4.97% and a very strong Saudi mid-month recovery. The Tadawul All Share Index ended the month down 1.16% after declining by as much as 9.16% as of the close of October 14. Elsewhere in the Gulf, Boursa Kuwait All Share Index closed the month down 1.67% also way off the lows of the month, while the worst performer was Oman MSM 30 Index down 2.66% followed by Bahrain and Dubai which were down 1.78% each. Abu Dhabi ADX General Index closed in negative territory down 0.68%. MENA equities as measured by the S&P Pan Arab Composite Index closed the month down 0.49% with Egypt EGX 30 down 9.35% during October.

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