We are pleased to announce another important milestone in our club&#39;s life. Namely, the partners recently launched a second portfolio that consists of &#39;quality&#39; stocks only. We defined the differences between our growth and quality stock portfolios as follows:

The growth stock portfolio&#39;s aim is to achieve the highest absolute returns in the long-term. The portfolio primarily consists of small and mid-capitalization companies with high growth potential that are also subject to higher volatility.

On the contrary, the quality stock portfolio&#39;s aim is to still achieve above market returns, however the return target is lower than the growth stock portfolio&#39;s. The portfolio primarily consists of large capitalization companies that have less growth potential, however their dominant market position and in most cases their above-average dividend yield provide more stable returns even under volatile market conditions.

In terms of the companies that the two portfolios invest, please see an infographics [here](https://drive.google.com/file/d/1-TatatbFLN6SjiBGzuNeAxdfncm5EEjz/view?usp=sharing).

This is another big milestone, because if we get to become a hedge fund, we will be able attract a more diverse investor base with different risk profiles.

Hopefully we will indeed get there soon; stay tuned!

Launching MFC Equity Quality Stock portfolio

TRUE

# **First Double Pitch Day: A glimpse into MFC Equity London**

Last week, the first monthly Double Pitch Day in the history of MFC Equity was successfully conducted in London.

As the name implies, both the analysts and associates pitched their investment ideas to the whole London branch. After each proposal the members debated the stocks to determine their future potential and whether they align with MFC&#39;s investment philosophy. The session was followed by an informal networking event accompanied by a couple of pints, making sure that besides education the members also have the opportunity to get to know each other in a more relaxed environment. The London Committee firmly believes that these are vital elements in the process of training the future generation while ensuring that the branch scales up in a sustainable and friendly manner.

However, the first Double Pitch Day, did not happen overnight. MFC London has been running and expanding for the second consecutive year. Today it encompasses 25+ members from UCL, KCL and Cass Business School, who meet biweekly for pitch days and workshops. Together they continuously manage their equity portfolio and refine their operations. The Double Pitch Day is the by-product of the mentors and committee who created the current system to provide a steep learning curve to analysts and to foster their integration with senior members.

What is next? MFC London continues its usual operation in the upcoming months. It will hold its second Annual General Meeting in March. As part of the schedule it will revaluate its modus operandi, set new goals and objectives, and most importantly, elect a new committee. Hence, keep tuned! After this period of self-reflection, MFC London will come back stronger with many events next year!

_The London Committee_

First Double Pitch Day: A glimpse into MFC Equity London

# **London&#39;s brightest business minds met MFC Equity**

**Two weeks ago, some of London&#39;s brightest business minds got together in London for the 2018 UCL DECA competition, hosted by the innovative workplace provider Fora - Borough. MFC Equity was pleased to accept the invitation for our Co-Founder &amp; VP, Bence Banhalmi and Head of London, Marko Morocz to attend as guest speakers.**

Organised annually by the UCL Business Society, UCL DECA is one of the UK&#39;s largest case study competition aiming to give students a chance to demonstrate their problem solving and decision-making skills in a competitive business environment. There are different topics in the DECA &quot;curriculum&quot;, ranging from technology entrepreneurship to strategy consulting, in which students compete with each other.

![picture1](/static/img/articles/picture4.jpg)

Besides the different case solving competitions, participants had the opportunity to join guest speakers and attend lectures between sessions. Amongst numerous topics – such as FinTech – Bence Banhalmi gave an introduction to the world of venture capital through his experience working in the space. Bence is an investment analyst at Eight Roads, a London based venture capital and private equity firm. It is safe to say that his deep knowledge in finding the growth potential in companies has proved to be an essential asset at MFC Equity. He shared some of these with the audience through a case study on one of Eight Road&#39;s portfolio companies in the FinTech space.

![picture2](/static/img/articles/picture5.jpg)

Another keynote speaker at the event was MFC&#39;s Head of London, Marko Morocz, who also sits on MFC&#39;s executive committee. He introduced our organisation and the local branch together with Bence to the audience, which was very well received by the audience. MFC is all about finding and nurturing the best talents, and we believe that the applications that soared in after the event shows us that with UCL DECA we have found a truly great partner for finding this talent.

If you share our vision and would like to join us on this journey, check out the MFC Careers section on our website.

London’s brightest business minds met MFC Equity

**China&#39;s economic setback and broken supply chains will make businesses look elsewhere**

**High frequency indicators, like coal demand show that the Chinese economy slowed sharply in Q1. Since China accounts for 17% of world trade and 9% of world tourism over 40% of some commodities the effect could be massive. A sharp decline in world tourism is logical and likely, the question is more about its duration and damage. A more difficult question is about the weak commodity demand, customer confidence and the disruption in supply chains with its effect on China&#39;s geopolitical position.**

China was in a severe trade war with the US since 2018 which already slowed down growth. Many travels and events were cancelled, at least 10 cities were locked down and multiple venues were closed to contain the new virus. Businesses in China were already cutting down on operations because of the Lunar New Year (which started on January 25th), but the closures were extended because of the virus. Many factories and businesses were told to stay for at least until 10 February closed, and according to [CNBC International](https://www.youtube.com/watch?v=k_9DLnl1RBE) these hubs account more than 80% of China&#39;s GDP and 90% of its exports. China&#39;s tourism industry is in a huge descent, domestic rail trips plummeted 75%. China&#39;s box office revenues descended below 4 million dollars, whereas in 2019 it was over the same period 1.5 billion dollars.

The return to normal manufacturing operation has been slow due to travel disruptions and quarantine efforts disrupting the return of workers to factories following the Chinese New Year holidays. As workers in China are being kept home amid fears of spreading the coronavirus, it&#39;s causing delays in the manufacturing supply chain.

The fashion industry and other sectors are also facing huge challenges from the other end of the production chain: consumer demand. Pauline Brown, ex-chairman of North America at LVMH, the world&#39;s largest luxury company and owner of Louis Vuitton says the luxury market is already experiencing the effect of the virus, especially as Chinese shoppers don&#39;t travel to make big-ticket purchases in cities like New York and Paris. Brown says that, as the consumer landscape becomes focused on health, there is less demand for luxury goods. According to Brown &quot;The Chinese people have been the biggest driver in luxury and fashion for the last 10 years,&quot;. &quot;They comprise about one-third of all purchases of luxury, but they are more than 70% of the annual growth in luxury consumption. So there has been a disproportionate reliance for quite a few years in that consumer.&quot;

But not only has the consumer landscape changed. China&#39;s isolation resulted in the disruption of global trade and supply chains in the process. In the weeks following 20 January the shipping activity at China&#39;s major ports fell 20% as CNBC explains. Since oil prices have fallen as demand weakens, automakers from Nissan to Honda will be impacted, and American giants for example Apple and Nike will also be affected since they have crucial operations in China. China&#39;s intertwinement to the world economy is the greatest in history; therefore the whole world will be affected by China&#39;s epidemic in economic terms as well.

Such reports have caused stock markets to plummet. The last week of February was one of the worst since the 2008 financial crisis for both the Dow Jones Industrial Average and the London Stock Exchange. Fluctuations in the stock market may continue as the fear of the coronavirus remains in the next few months. Stabilization can be expected only if the spread of the virus comes to a halt or if a feasible solution is proposed. The global spread of the virus creates volatility, and the fluctuation could increase if fear-generating events happen like other outbreaks apart from Italy, South Korea, Iran etc. or the mutation of the virus.

Companies in a wide range of industries are extremely dependent on China both as a consumer market of more than a billion dollars and as a manufacturing giant. But as life in some regions of the country slows down drastically as a result of the outbreak, that reliance is more and more a weakness. As Gary A Wassner, the chairman of InterLuxe and CEO of Hilldun Corporation, both leading factoring and financing companies, said &quot;The majority of certain products are only done in China and we became very dependent, and we allowed it to happen because it was cost-efficient, but that&#39;s not the only thing to consider.&quot;

Supply chains can get really complex, since the suppliers have suppliers of their own, who may, in turn, even have a third layer of suppliers. Therefore this whole intertwinement can cost a lot for companies with obscure or long supply chains. Even risk-averse Microsoft announced that its quarterly sales would be lower than expected as a result of the virus&#39;s impact on its supply chains.

Like Apple, companies around the world start to realize that their China-linked supply chains bring not only financial advantages but huge risks, too. And the Coronavirus won&#39;t be the last risk. China&#39;s inequality, recent protests in Hong Kong and authoritarian governing pose a threat that the stability of the supply chains will be broken in the future if the unexpected happens.

Instead, businesses should start to focus in the direction of diversification. Although, having additional suppliers in other countries would cost more, but it would also guarantee some stability in case of crises.

Long international supply chains pose an enormous vulnerability, not just to the companies relying on them but to the countries where those companies are based and where their products are delivered. Therefore it may also come to question, that countries will be motivated by what happens regarding the virus to create regulations on supply chains in crucial sectors like healthcare and defense sector. This way countries can make sure that if crises happen their population will be safe.

This all suggest that China is likely to lose its place as the manufacturing behemoth for first world countries. The degree of China&#39;s relegation from the focus will mostly depend on the severity of the outcome of the outbreak, how businesses will react and what options they will have, but it is already clear, that he is now the underdog of the crisis.

(Sources: OECD, ECOSCOPE, FP, Trowerprice, TIME, World Economic Forum, CNBC, MSNBC, New York Times)

China's economic setback and broken supply chains will make businesses look elsewhere

# **October market volatility**

Last week, the S&amp;P500 plummeted as much in a single day as not since February 2018 and January 2016 before. Although the above 3% decline was clearly apparent, the drivers behind the fall were not as much. Please see a quick summary of our perspective on these market moves:

![Standard and Poor's](/static/img/articles/picture1.jpg)

To start with, it was not the result of a single trigger, but rather the combination of multiple events that hit the markets roughly simultaneously. Firstly, the yield on the 10-year US Treasury reached 3.25% in October, the highest level since 2011. This not only means that investors now can earn measurable returns without risk – and consequently prompting investors from equities to fixed-income – but this also greatly reduces current valuations as the discount factor increases. Secondly, the impact of the long lasting trade war between US and China seems to take effect and for example the IMF has reduced its global growth projection for both 2018 and 2019. In addition, the IMF also noted in its World Economic Outlook that _&quot;downside risks to global growth have risen in the past six months and the potential for upside surprises has receded.&quot;_ Finally, Morgan Stanley downgraded the luxury sector as they warned that Chinese demand is waning.

![United States 10-Year](/static/img/articles/picture1.jpg)

What changed on Friday and why the S&amp;P500 rebounded? Firstly, it was a relief rally that we often see after such corrections. But more importantly, we also saw a few reports published on the macro side that helped to mute these fears. For example, Chinese exports jumped nearly 15% in September compared to last year, beating analysts&#39; forecasts and defying the impact of the US tariffs. In addition, there are talks to arrange the next meeting in November between President Trump and Xi Jinping. Finally, the US inflation (CPI) came at 2.3% versus the estimated 2.4%. If inflation is indeed not picking up, the Federal Reserve will be less forced to hike interest rates and consequently we might see yields at current levels for a longer time.

We view last week&#39;s market volatility as a result of unfortunate coincidence of these events that prompted some investors to suddenly realise some risks that were otherwise apparent for months. As for the yields, the Federal Reserve has long signalled that it is going to hike interest rates in a gradual manner – one more planned for this year – while investors are and have been pricing fewer rate hikes. Therefore, the rising yields are not surprising at all. The US-China trade tensions indeed do not seem to resolve unfortunately, although the IMF now projects 3.7% global GDP growth for 2018 and 2019, a downward revision of 0.2% compared to its last forecast in March. As such, this is still an above average growth and should support equity valuations. To summarise, we already calculated with these risks, and consequently these events do not materially change our outlook for the foreseeable future.

What could change this? Companies just started reporting their earnings for Q3, and therefore we will be closely watching how much tariffs are taking their toll on companies&#39; profitability. Should it surprise us on the downside, we will definitely revisit our outlook.

October market volatility

# **Mystery of wage growth in the US**

**The US is doing well in terms of the job market. Unemployment rate is the lowest since the 2000s and wages seem to grow too. However, workers&#39; experience is different than what the media tells.**

The Bureau of Labor Statistics (BLS) shows that the unemployment rate in the US is the lowest since 2000, currently standing at 4%. They also said that the wage growth is the highest since 2009 with an approximately 3.1% annual rate. (The US had added around 220000 jobs over the last three month and the average hourly earnings for private workers also had the biggest growth since 2009, currently standing at 27.3$)

This might make us think that the US is prospering, but the reality is much more complex. The biggest flaw of relying on these statistics is that it completely misses out the Consumer Price Index (CPI). If we take into account the inflation-adjusted numbers there is only 1% growth of wages currently.

We can now see that the income of workers didn&#39;t actually grow that much. A crucial explanation can be the weak bargaining power of the workers due to weaker unions and increased market concentration. In my view, the fear of automatization has already started to play a role in this problem, and as time will pass, this danger may increase thus making unions even weaker. If staying untreated, this can result in distress amongst the working class, which may have more unwished consequences. These can be summed up as marginalization, which can have a bad impact on both physiological and psychological health, behavior and the way of thinking.

On another note, I think it is also worth to note a Brookings commentary on a study by Carol Graham: &quot;Happiness for All: Unequal Hopes and Lives in Pursuit of the American Dream&quot; (Princeton University Press 2017). One of the commentary&#39;s main conclusions is that the US is facing even more current problems; due to unequal opportunities and income there is a rising rate of mortality due to premature deaths (suicide, opioids, and alcohol poisoning, among others).

(sources: CNBC, Bureau of Labor Statistics, BBC, Forbes, Brookings, Financial Times)

Mystery of wage growth in the US

# **OECD predicts the global economic growth to slow down in the future**

*Trade tensions and rising interest rates mean harm to the global GDP: the global economy will tail off according to the OECD forecast.*

The Organization for Economic Cooperation and Development (OECD), an establishment with a mission to promote policies that will improve the economic and social well-being of people around the world, tells us that the global economic growth remains strong but 2019&#39;s global GDP growth is now expected to be 3.5% instead of last May&#39;s projection of 3.7%.

OECD Secretary-General Angel Gurría suggested that „one major reason for this [setback] is a breakdown in co-operation. The imposition of new tariffs and uncertainty about further restrictive trade actions are contributing to a marked slowdown in trade growth, dampening global investment and threatening jobs and living standards&quot; Furthermore Angel Gurría believes that protectionism will not solve this issue and a coordinated response is needed.

One of the biggest issues which make the safeguarding of the multilateral system difficult is the trade war of China and the US. What is more, the US may impose even more tariffs on all Chinese goods. A full-scale trade war would mean a 0.8% off from the global GDP.

The countries at risk of this slowdown are the non-OECD countries for example South Africa, due to the capital outflows on account of the United States&#39; rising interest rates. A global slowdown also threatens bigger economies: Germany is negatively affected by the US-China trade war, since it caused a decline in car exports.

Laurence Boone, OECD Chief Economist said that &quot;there are few indications at present that the slowdown will be more severe than projected. But the risks are high enough to raise the alarm and prepare for any storms ahead. Cooperation on fiscal policy at the global and euro level will be needed.&quot;

All these facts tell us that there is a strong need for global cooperation if we want the global GDP growth to creep up. Luckily the G20 summit in Buenos Ares between the 30th of November and 1st of December will provide the opportunity to solve this issue: the future of the global economy is beginning to be in the hands of the G20 leaders.

Mátyás Szűts

(Sources: OECD, CNBC, The National, Al Jazeera, CNN)

OECD predicts the global economic growth to slow down in the future

# **G20 Summit in short**

**G20 leaders met in Buenos Aires on the 30th of November and 1st of December to discuss issues such as trade wars and climate change. The results were somewhat positive, but change is needed to prevent conflicts.**

USA-China trade truce:
On Saturday night, the two leaders, Xi Jinping and Donald Trump sought to resolve the trade disputes with the threat of all-out trade war hanging over their heads like the Sword of Damocles. In spite of the previous disputes, the two countries could reach agreements which could better their relationship.
One of the biggest achievements is the US delaying the threatened imposition of 25% tariff on nearly all Chinese imports. Trump said about the dinner meeting with Xi that &quot;it was an amazing and productive meeting with unlimited possibilities for both the United States and China&quot;.
China also agreed to purchase a substantial amount of agricultural, energy, industrial and other products from the United States to reduce the trade imbalance. This could better the condition of US economy with a special attention to the agricultural industry, the most affected sector of the trade war in US.

&quot;The two presidents agreed that the two sides can and must get bilateral relations right,&quot; Wang Yi, China&#39;s lead diplomat said. Although solving trade issues was constructive, if the two countries fail to improve their relations the US may continue with posing the 25% tariff.

The turmoil of multilateralism: crisis of the WTO (and of the rules-based international order)
Trump, Xi, Putin, Erdogan and the Saudi crown Prince, Mohammad bin Salman, posed a question about the survival of multilateralism. France&#39;s president Emmanuel Macron  also said that &quot;multilateralism is going through a real crisis&quot;. It is not a surprise that the World Trade Organization (WTO) is on the verge of becoming dysfunctional; a reform is needed to bring global trade negotiations back to the WTO.

World leaders have signed off on an [agreement](https://g20.org/sites/default/files/buenos_aires_leaders_declaration.pdf) which reaffirms a basic commitment by the world&#39;s biggest economies to multilateral trade and a &quot;rules-based international order&quot;, but bows to US demands for urgent reform of the WTO.

Climate change
19 of the G20 leaders reaffirmed their commitment to the Paris Agreement, with the US holding out to their withdrawal under President Trump. A senior White House official also called the pact as the &quot;job-killing Paris agreement&quot;. Russia, Saudi Arabia and Turkey appeared sympathetic to the US position, but eventually stayed with the other countries.

Conclusion
Today we are facing lots of conflicts and quarrels between nations and in order to be able to resolve it, we have to appeal to a rules-based international order. However, this is much harder in practice: with a lot of strong leaders with different interests, these rules have to be constantly changing; this requires expertise, experience and healthy connections in the lawmaking. Changing the rules is not only about fairness, but national interests should also be considered to avoid the feeling of negligence which could trigger anti-multilateralist behavior. Since that could decrease the possibility of successful negotiations between nations this result has to be prevented with every effort.

Mátyás Szűts

(Sources: European Council, The Guardian, G20 Argentina 2018, Deutsche Welle)

G20 Summit in short

# **Fed ends 2018 with a rate hike**

**On what&#39;s said to be the final big event for the year that is market moving, the Federal Reserve on 19 December raised its benchmark interest rate a quarter-point but lowered its projections for future hikes.**

Heading into the announcement, many analysts had expected a &quot;dovish&quot; interest rate increase paired with strong verbal cues that the central bank would not tighten excessively in a period when global stocks have retreated amid concerns over slowing growth and trade wars. However, the Fed and Chairman Jay Powell did not go far enough to assuage markets.As markets had expected, the central bank took the target range for its benchmark funds rate of 2.25 percent to 2.5 percent. The move marked the fourth increase this year and the ninth since the Fed began normalizing rates in December 2015. Officials, though, now project two hikes next year, which is a reduction but still ahead of current market pricing of no additional moves next year.

As Trump views the condition of the stock market as the symbol of success of his policies and the health of the country, a rate hike has resulted in a fall in the S&amp;P500. Reports suggested that the S&amp;P 500 had its worst reaction to a Fed rate rise since 1994, which triggered President Donald Trump to tweet: &quot; it is incredible how the fed is considering yet another interest rate hike&quot;. Further reports suggested that Trump was looking to replace Jerome Powell from his post due to incoherent monetary policy strategy.

It was surprising however, how the Fed did not talk much about the financial, economic and political developments across the world, in fact saying that risks surrounding the economy are roughly balanced. This was contrary to how other independent central banks viewed their policy stance. The ECB for instance came out saying that the risks were roughly balanced, however, there were some signs of potential downside risks. The Japanese central bank also kept its base interest rates unchanged as the world continues to account for increased instability both geo-politically and economically, especially as equity markets have been under pressure and oil has been collapsing.

A few economists even suggested that quantitative tightening combined with a weakening economy might be the balance that tips us into a recession, what the inversion has suggestedcould be coming. The question arises that &quot;has the Fed has been a little too strict here in not responding to the outside economic developments?&quot;

We can also see from the initial sell-off that gold had with the first few interest rate hikes, the last few have had an opposite effect on the gold which could be a good indication for falling investor sentiment for the dollar. &quot;While this was a dovish hike from the stance that the Fed was in before, this is somewhat not as dovish as many participants probably wanted,&quot; said Charlie Ripley, senior investment strategist for Allianz Investment Management. &quot;It would have been a difficult move for the Fed to completely remove some of the 2019 hike expectations, but I think they&#39;re making the message clear that they&#39;re going to remain more data dependent as we go into 2019.&quot;

Fed ends 2018 with a rate hike

# **Market sentiment for 2019**

**The start of 2019 has struck a lot of contradiction in the markets mostly headlined by the Fed policy expectations and, as the week went by, the Q4 economic data news. Here is a collection**

The latest ISM manufacturing PMI results showed a massive decline in future business sentiment since November 2016, as the outcome for Q4 regarded a lower than expected number of 54.1, against analysts&#39; expectations of 57.9. The ISM is made up of constituents describing forward looking indicators and economic data. The data also represents the inversion of the yield curve that&#39;s been happening, which indicates a future slowdown and an impending recession.

One thing to observe from the ISM reading is the new order constituent which saw the largest monthly drop since August 2008 as growth in orders, new production, and employment opportunities in certain sectors sharply slowed. Such sizeable drops haven&#39;t occurred since the global financial crisis and should be noted that the economy is getting ever so close to the 50 lower bound indicative of the start of a recessionary period.

The numbers also showed that businesses were not putting as many orders into action, which may not look good for the future. On the other hand,  other data that came out included the US Nonfarm payrolls which showed massive potential for businesses in other sectors, as a headline reading of 312,000 dominated analyst expectations of 177,000. This showed that job gains occurred in healthcare, food service and drinking places, construction, manufacturing, and retail trade, etc. which in turn pushed US employment above the 150 million jobs level for the first time, indicative of a strong performance.

Average hourly earnings in the US rose by 11 cents or 0.4%, beating expectations of a rise of 0.3%, matching the fastest pace since 2009 seen in October.  This had a meaningful response on the equity market after Fed chairman Jerome Powell&#39;s latest press conference. About their interest rate policy for the future, he said that the Fed are in no rush to raise interest rates any time soon, although two more rate hikes are still predicted for this year. This just comes to show that if the Fed were not dovish but remained quite neutral and the economic data was faltering, then we would have seen some sort of equity weakness.

Lastly, Apple has been highly talked about since the start of the year after its stock fell about 8.5% after market and dragged the entire Wall Street the following day. This was because Apple came out with a sudden warning that they were lowering their first quarter revenue guidance, pinpointing to the slowdown in China. We should also consider that the Chinese PMIs now have fallen into contractionary territory which certainly heightens this concern about global economic growth.

Hence, everyone was sort of conservative towards the economy before the start of the new year but Jerome Powell&#39;s sort of dovish tone towards his interest rate policy helped to prop the market back up. Some things to note in the coming week are the economic data coming out for European countries, voting for Theresa May&#39;s Brexit deal and the ongoing government shutdown in the US. Additionally, investors should watch out for outcomes from the trade delegations travelling from US to China on Monday and Tuesday.

Yash Khemaney

** **

Market sentiment for 2019

# **Where is Oil headed?**

**Be it, the tensions in the Middle East or the simple overproduction of crude oil, the 44% decline in crude oil prices in Q4 2018 was indeed a dramatic one. Looking back, however, the recent decline did pale in comparison to the 79% fall in prices between June and December 2008  and the 76% plunge from November 2014 to early 2016.**

The most significant thing to note though, is that the implied volatility on 30-day WTI crude oil options did spike to all time high levels alongside longer dated WTI options. If we look at past trends, this would signify that the economy is in the state of a bear market. Even though oil prices have rebounded substantially from their recent lows, oil options continue to trade at levels of implied volatility similar to the most volatile periods of the 2014-16 price collapse.

There are 2 major scenarios that could lead to such high levels of implied volatility. Firstly, if the price of oil begins to decline again and breaks through its recent lows, oil options volatility may remain at or near record highs. Next, if there was a supply shock that could send prices soaring again, we could see those high levels of implied volatility again.

Analysts have predicted that the U.S. may stop increasing its production in the coming several months.  Investments in the U.S. energy sector contracted in 2015-2016 as oil prices crashed. It began to rebound in mid 2016 as oil prices moved back above $40 a barrel and then went into overdrive as prices soared to the $60-$80 range by the summer of 2018. With prices back down to around $50 per barrel and some fracking wells not producing as much as had been hoped for, U.S. production might fall, at least temporarily, at some point over the next 6 months. If so, this would trigger a major source of downward pressure on oil prices.

Next, oil might be supported near $40 per barrel, which is probably close to the marginal cost of production of U.S. oil producers. Although imperfect as an indicator, rig counts are still worth watching. If the number of operating rigs begins to fall, that may signal a peak in U.S oil production is coming in about 3-5 months. In recent months, the number of operating rigs has been stagnant, which might indicate that the US production is nearing a local peak. The limitation with the rig count indicator is that it fails to account for varying productivity between rig developments.

Additionally, after years of wild swings, inventories may finally be stabilizing. After soaring in 2014-2015, and the drawing down substantially in 2017 and 2018, inventory levels appear to be stabilizing where they are just a few percent above where they were at last time this year.

Lastly, vegetable oil prices, which correctly presaged the recent crash in oil prices, as well as many past moves in oil, are not sending particularly bullish or bearish signals at the moment. Vegetable oil prices presaged the early stages of crude&#39;s rally in 2016 and 2017 but began falling in late 2017, appearing to anticipate the recent collapse in crude prices just as they did in 2008 and 2014. In recent weeks, vegetable oil prices have been stable yet directionless. Perhaps that is crude oil&#39;s near term future as well.

Perhaps the most likely scenario for oil prices would be for them to trade sideways in a range from $40-$60 per barrel.

Yash Khemaney

Where is Oil headed?

# **Potential Bubble: The US Student Debt Crisis**

**1.52 trillion dollar in student debt makes the graduates struggle to start their own life, thus crimping demand for other goods and services. This burden may not only hinder the economy, but large portion of it is not even likely to be repaid. Hence this may also be a financial bubble as well as a long term economic difficulty to grow.**

**The size of the debt**

A decade after the financial crisis we hear about low employment and prospering economy. Still, there is one area which critically worsened during this period, signaling a threat: the student debt.

Student debt has more than tripled since 2004, reaching $1.52 trillion in the first quarter of 2018, according to the Federal Reserve Bank— second only to mortgage debt in the U.S, surpassing auto loans, credit card debts and mortgage debts. About 44 million graduates in the US hold student debt. Student loans have seen almost 157 percent in cumulative growth since 2007. They are being issued at unusual rates, since more American students decide to [pursue higher education](https://www.census.gov/newsroom/press-releases/2017/cb17-51.html) according to the United States Census Bureau, and as a consequence the cost of [tuition](https://www.bloomberg.com/news/articles/2016-10-26/college-is-still-getting-more-expensive-what-can-stop-it) at both private and public institutions is touching [all-time highs](https://trends.collegeboard.org/college-pricing/figures-tables/tuition-fees-room-board-over-time).  U.S. Department of Education Secretary Betsy DeVos said that 70% of the student loan debt growth is attributable to more borrowing, while 30% is due to an increase in student loan borrowers.

**The debt as a burden**

The result of these loans is that many Americans find it difficult or simply are [unable to buy houses](https://www.cnbc.com/2018/04/19/student-loan-debt-can-make-buying-a-home-almost-impossible.html) and [cars](https://www.thestreet.com/story/13258773/1/student-loan-debt-still-forcing-millennials-to-delay-purchases-of-cars-and-houses.html), start [businesses](https://www.forbes.com/sites/kauffman/2014/09/15/student-debt-and-the-millennial-entrepreneurship-paradox/#7891c7623ebd) and families, [save or invest](https://www.cnbc.com/2018/05/23/how-your-student-loans-can-hurt-you-later-on-.html). Indeed, a 2017[Federal Reserve study](https://econpapers.repec.org/paper/fipfedgfe/2016-10.htm)shows a correlation between higher student debt and lower homeownership. The study cites others that find that greater student debt may be responsible for delayed marriage and for having children later, and even for reducing the probability of undertaking graduate or professional degree programs or for taking a lower-paying public interest job. The Fed also [found](https://www.federalreserve.gov/publications/files/consumer-community-context-201901.pdf?mod=article_inline) that only 36% of adults aged 24 to 32 (9 percentage drop from 2005) owned a home in 2014. Since during this time period, the level of outstanding student loan debt nearly doubled, it is assumed that (although it may not be the central reason), student debt did play a factor in the decline of house ownership. In fact the Fed estimates that about 20% of the drop in ownership is attributable to student loan debt. That is about 400,000 young people, who could have owned a home in 2014 if there weren&#39;t this increase in student loan debt. „You have a whole generation of people that have a significant amount of student loans and its crimping demand for other goods and services,&quot; said Ira Jersey, the chief U.S. interest rate strategist for Bloomberg Intelligence. &quot;As people live with their parents, or cohabit with a non-partner, millions of houses and apartments aren&#39;t being purchased. Neither is Wi-Fi or that extra sofa. We think this is having a significant impact on the economy.&quot;

According to [Steve Denning at Forbes](https://www.forbes.com/sites/stevedenning/2016/05/27/why-us-entrepreneurship-is-dying/#247c8a717d74) and [Mitchell E. Daniels at Wall Street Journal](https://www.wsj.com/articles/mitchell-e-daniels-how-student-debt-harms-the-economy-1422401693) as student debt rises, young entrepreneurship is also falling ([although some say](https://smallbiztrends.com/2016/06/millennial-student-debt.html) it is only a result of change in attitudes).

**Delinquency and default rate**

Nearly a quarter of student loan borrowers are currently in a state of delinquency or default [according](https://www2.ed.gov/offices/OSFAP/defaultmanagement/defaultrates.html) to Education Department data. 40% of student loan borrowers are expected to default by 2023, according to the [Brookings Institute](https://www.brookings.edu/research/the-looming-student-loan-default-crisis-is-worse-than-we-thought/) and the [Urban Institute](https://www.urban.org/sites/default/files/publication/98884/underwater_on_student_debt.pdf).

Student loan debt currently has the highest, 90+ day delinquency rate of all household debt. More than 10% are at least 90 days delinquent, while mortgages and auto loans have a 1.1% and 4% delinquency rate, according to Bloomberg Global Data.

# **Expectations**

Can we expect a 2008-like hit again? Ira Jersey, the chief U.S. interest rate strategist for Bloomberg Intelligence doesn&#39;t think the student debt crisis is as severe as the subprime collapse of a decade ago. &quot;It&#39;s much different than mortgages,&quot; Jersey said. &quot;Even though it&#39;s a crisis in that it increases the deficit, and taxpayers have to pay more over time, it doesn&#39;t present a systemic financial sector risk like mortgages in 2007.&quot; &quot;The fact that we&#39;re not going to have a Lehman Brothers&#39; moment doesn&#39;t mean that there aren&#39;t tremendously important effects of student debt on the broader, macro economy and on growth. The damage of the financial crisis in 2008 reverberated across financial institutions and triggered the failure of major banks. The damage of student debt is more personal and insidious.&quot; said Constantine Yannelis, assistant professor of finance at the University of Chicago&#39;s Booth School of Business to CNBC. &quot;The deepening student debt crisis isn&#39;t just bad news for students and recent graduates. The delinquencies that come with it may have a significant negative impact on the broader economy.&quot; as Fed Chairman Jerome Powell told Congress. He also warned that slowed growth isn&#39;t showing up in the data yet, but &quot;As this goes on and as student loans continue to grow and become larger and larger, then it absolutely could hold back growth.&quot;

&quot;It&#39;s a lot of money, but a bubble is when the price of something dramatically exceeds the actual value of that asset,&quot; said Douglas Webber, an economics professor at Temple University. &quot;For the average student, the value of a college degree is still very high and far exceeds the price of going to college.&quot; What Webber forgets here is that more and more people get degrees, therefore it is likely to be less valued as before, as[The Economist shows](https://www.youtube.com/watch?v=uOouUYXB14E). This can be avoided if jobs demand for degrees that once didn&#39;t or the job market grows as much as the number of new graduates.

Webber also forgets to differentiate between degrees; graduates who leave school with six-figure degrees that are valued in the marketplace—such as post-graduate law or medical degrees—usually see a good return on their investment.

# **What is behind this?**

As U.S. Department of Education Secretary Betsy DeVos said, 70% of the student loan debt growth is attributable to more borrowing, while 30% is due to an increase in student loan borrowers. But if we dig deeper there is more to it.

 In some cases, students are going to &quot;less than savory education providers. In these predatory college models they aren&#39;t really getting anything in terms of marketable skills,&quot; said Cliff Robb, a professor of consumer science at the University of Wisconsin-Madison. &quot;Predatory colleges target the same low-income populations that the subprime mortgage boom targeted by offering a similar promise of white picket fences and higher education as part of the American middle class dream,&quot; Toby Merrill, director of the Harvard Law School&#39;s Project on Predatory Student Lending, said in [a recent interview](http://thirdway.imgix.net/pdfs/interviews-with-influencers-toby-merrill-eileen-connor.pdf).

Still not only the problem is not only these questionable schools. The other trouble is with the rising cost of tuition and the wage stagnation. Family income has been flat, so their ability to pay for college has not changed. However in the meantime college costs have increased, so families and students either decide to enroll in lower-cost collages or turn to loans. Eventually more people turn to student loans. &quot;Starting salaries have not grown as fast as average debt at graduation,&quot; Mark Kantrowitz, vice president of research at savingforcollage.com said. &quot;This causes debt-to-income ratios to increase, a sign that more borrowers are graduating with more debt than they can easily afford to repay.&quot;

Moreover, while college dropouts and for-profit graduates often struggle to find jobs with high enough wages to pay for their education, minority graduates are more likely to face [discrimination](https://www.demos.org/publication/debt-divide-racial-and-class-bias-behind-new-normal-student-borrowing) in labor markets, making matters worse.

# **Conclusion**

While all this may be a bubble, for now it is not big enough to worry about it. The problem which fuels the bubble is the increase of tuition fees, costs of living during university years and the salaries failing to keep up. This causes difficulties in repayment, therefore ultimately results in the increase in the number of defaults and delinquencies.

This is not only worrying but it has an effect on our economy as well. Since student loan takers struggle to repay their loans they don&#39;t have the money to purchase goods and services. This results in a lower demand which will be a difficulty to grow in the long term.

It is also important to note the simultaneous decrease in the value of specific degrees due to oversaturation. This can also hinder repayment as degrees eventually are not worth all the expenditures (including the fees, cost of living and opportunity cost).

In my view as time goes by and more predatory colleges target students, this bubble will grow and it may eventually explode if nothing is done to avoid the crisis.

Mátyás Szűts

(Sources: CNBC, Bloomberg, Forbes, The Economist, Wharton University of Pennsylvania)

Potential Bubble: The US Student Debt Crisis

Weekly Market Commentary (November 23 – November 27)

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**Market themes and outlook for May 2020**

Stocks continued to rally as developed economies started to gradually reopen, but new cases stayed contained in the respective regions. With the society expected going more digital post the COVID-19 crisis, technology stocks – led by the so-called FAANG stocks – were clear outperformers once again. While investors were generally upbeat about recovery prospects, tensions have resurfaced again between Washington and Beijing, thus causing extra volatility in the markets. 

Going forward, we reiterate our previous view that dispersion will be high. In particular, we believe that the outperformance of the FAANG stocks will cease if not reverse as their valuations became stretched, while investors will also stop bidding so aggressively for the largest and most stable companies. To elaborate on the latter, we believe investors will realise that even smaller companies can survive the current downturn as the economic recovery will gain traction, while those companies with the right technology can come out even stronger from the pandemic. Given that FAANG stocks account for 10+ percent of the S&P500, smaller stock will more easily outperform the S&P500 when the FAANG stocks stay range bound or even underperform. With this backdrop, we believe active portfolio management should pay off more than in the past few years and thus investors should carefully handpick stocks in their portfolios.


**US**

The IHS/Markit US Composite PMI was revised higher to 37 in May of 2020 from a preliminary of 36.4 and above a record low of 27 in April. However, the reading still pointed to the second biggest contraction ever in private sector activity, due to the coronavirus pandemic. Both manufacturing (39.8) and services (37.5) went down as the impact of the coronavirus continued to dampen client demand. At the same time, new order inflows declined at a slower rate than in April, despite domestic and foreign demand remaining subdued.

The US economy lost 20.5 million jobs in April, less than market expectations of a 22 million cut, and after declining by 870K in March. The US unemployment rate jumped to 14.7 percent in April 2020, the highest in the history of the series and compared to market expectations of 16 percent, as the Covid-19 crisis threw millions out of work.
As of 28th May, the Federal Reserve's balance sheet rose marginally to $7.1 trillion, up from ~$4 trillion a few months ago. 

Tens of thousands of people have demonstrated across the United States following the death of African-American George Floyd in police custody. While demonstrators were mainly peaceful at the beginning, police and the protesters clashed several times in late May and early June. Fires burned near the White House, stores were looted in New York City and Southern California, and a tanker truck drove into marchers in Minneapolis as the United States struggled to contain chaotic protests over race and policing.


**Europe**

The IHS Markit Eurozone Manufacturing PMI came in at 39.4 in May 2020, little-changed from a preliminary estimate of 39.5 and above April's all-time low of 33.4.  The IHS Markit Eurozone Services PMI was revised higher to 30.5 in May 2020 from a preliminary estimate of 28.7 and compared to April's record low of 12. The economic sentiment indicator in the Euro Area rose to 67.5 in May 2020 from a downwardly revised record low of 64.9 in the previous month but below market expectations of 70.3.
  
The Euro Area seasonally-adjusted unemployment rate rose to 7.3 percent in April 2020 from a downwardly revised 7.1 percent in the previous month, but well below market expectations of 8.2 percent, as the number of unemployed persons increased by 211 thousand to 11.919 million. 
On the 30th of May, The European Union proposed a 750 billion euro recovery package as the economic bloc attempts to crawl out of its worst economic crisis in decades. The EU fund is expected to be financed through borrowing, by issuing long-term government bonds in global financial markets.


**China**

The Caixin China General Services PMI jumped to 55.0 in May 2020 from 44.4 in the previous month, pointing to the first month of growth in the service sector since January and the fastest since October 2010, as the economy recovers from strict coronavirus-led containment measures. The Caixin China General Manufacturing PMI rose to 50.7 in May 2020 from 49.4 in the previous month and beating market consensus of 49.6.

Tensions have resurfaced between Washington and Beijing as President Donald Trump said he is "looking at" Chinese firms listed on US stock exchanges that don't adhere to US accounting rules, implying the possibility of delisting them. Later, President Donald Trump instructed his administration to “revoke Hong Kong’s preferential treatment as a separate customs and travel territory from the rest of China.” The decree came days after Secretary of State Mike Pompeo reported that Hong Kong could no longer be said to have “a high degree of autonomy” from Beijing because of the Chinese Communist Party’s move to implement a national security law on Hong Kong. However, President Donald Trump did not follow up on Chinese stock listed in the US.


**\*\*\*Disclaimers\*\*\***
 
**Investing involves risks, including possible loss of principal. Past performance is no guarantee of future results.**
 
_The strategies and companies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security. This material is not intended to be relied upon as a forecast, research or investment advice. There is no guarantee that any strategies discussed will be effective._
 
_This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice._
 
_This material contains general information only and does not take into account an individual&#39;s financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision._
 
_©2020 MFC Equity. All rights reserved._

May 2020

**Market themes and outlook for April 2020**

Since markets bottomed in March, stocks have been on fire. Despite countless ugly macroeconomic readings, stock markets kept marching up. The optimism was partly fueled by moderating COVID-19 growth rates, and partly because several worst-case scenarios could be ruled out as investors gained a better understanding of the coronavirus impact. 

Focusing on the very foreseeable future, we see limited upside for the US stock market as a whole. We are concerned that investors are now pricing a very smooth recovery from the crisis, and therefore any bad news along the way could trigger profit-taking. After all, markets are up ~30% from their March lows. Looking further ahead though, we are still optimistic, and particularly about individual stocks. In other words, we believe that the differentiation between winners and losers will increase and while the overall stock market may not climb further, individual stocks could continue rallying. The latest earnings reports reinforce this belief as several companies said that the coronavirus had limited or actually positive impact on their businesses, while most of these companies still trade at a 10-30% discount to their January highs. To clarify, companies like Netflix or Zoom, that are the obvious winners of the pandemic, seem fully or overpriced. However, ‘boring’ companies in less affected industries with stable cashflows could easily go back to their previous levels in our opinion.  



**US**

The US has more than 1 million confirmed cases, however the daily growth rate has slowed to ~2% only, according to the 101th WHO Situation Report. President Trump won’t extend social distancing guidelines as he is trying to reopen the US economy, as reported by CNBC.

The US economy shrank by an annualized 4.8 percent in the first quarter of 2020, much worse than market consensus of a 4.0 percent slump. In the meantime, 30 million Americans filed initial unemployment claims. The ISM Manufacturing PMI for the US dropped to 41.5 in April 2020 from 49.1 in the previous month, remaining above market expectations of 36.9. The smaller-than-expected drop in the ISM index was because the survey's measure of supplier deliveries jumped, which is usually associated with strong customer demand but currently the result of virus-related supply constraints. 1 

The Fed left the interest rate unchanged in the range of 0-0.25% and reinforced that the bank “is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.” Indeed, its balance sheet expanded to a record $6.70 trillion in the week ended April 29.


**Europe**

Spain, Italy and the United Kingdom remain the most infected countries in the European Union, but the average daily growth rate in these countries slowed to ~1.5%, according to the 101th WHO Situation Report. In the meantime, Italy, Germany, Austria and several other countries also moved towards a partial reopening in late April.

The Eurozone economy shrank by 3.8% on quarter in Q1, compared to market expectations of a 3.5% contraction, a flash estimate showed. The Euro Area seasonally-adjusted unemployment rate edged up to 7.4 percent in March of 2020 from 7.3 percent in the previous month and below market expectations of 7.7 percent, as the number of unemployed persons increased by 197 thousand to 12.156 million. 

The ECB also left its interest rate unchanged, but announced easing of conditions for targeted longer-term refinancing operations (TLTRO III) to help the bank sector. Interest rate on TLTRO III was reduced by 25 basis points and can be as low as 25 basis points below average deposit facility rate during period from June 2020 to June 2021 for all TLTRO III operations outstanding during that period.



**China**

China reported single digit or low double-digit daily new cases (not growth rate, but actually cases) for most days in April, according to WHO Situation reports. 

The Chinese economy shrank 6.8 percent year-on-year in the first quarter of 2020, after a 6 percent growth in the last three months of 2019 and compared with market forecasts of a 6.5 percent decline.  The Caixin China General Manufacturing PMI dropped to 49.4 in April 2020 from 50.1 in the previous month, missing market consensus of 50.3. 1 

According to a MarketWatch article, “almost all — 91% — of the more than 500 Chinese companies surveyed had reopened by late April, and about three-quarters were working on-site again, but just 42% were able to operate at more than half their capacity. … Crucially, 81% of executives at surveyed companies said they’re worried about a resurgence of the coronavirus in the next three months. And 69% say April’s tepid pace of economic activity may be “as good as it gets” for the next several months.”



**\*\*\*Disclaimers\*\*\***
 
**Investing involves risks, including possible loss of principal. Past performance is no guarantee of future results.**
 
_The strategies and companies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security. This material is not intended to be relied upon as a forecast, research or investment advice. There is no guarantee that any strategies discussed will be effective._
 
_This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice._
 
_This material contains general information only and does not take into account an individual&#39;s financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision._
 
_©2020 MFC Equity. All rights reserved._

April 2020

**Weekly Market Commentary (April 13 – April 17)**

**Global Market Highlights**

- **US equities were higher for the week even though economic worries weigh on markets**

- **Analysts expect quarterly profits to drop more than 14%**

- **Some European nations ease restrictions, while others extend lockdowns**

- **Eurozone finance ministers agree on loan-based rescue package**

- **ECB is ready to do whatever it takes according to Lagarde**

*US Markets*

Major indices were higher for the week even though investors saw record downturns in economic data compared to hopes that progress in containing the virus might soon result in the partial reopening of the economy. The technology-heavy Nasdaq Composite index outperformed all of the other benchmark indices by a large margin. The S&amp;P 500 index was pushed higher by strong gains from chipmakers and companies like Apple and Microsoft. Consumer discretionary stocks were lifted higher as Amazon reached a new all-time high. Healthcare stocks were boosted by gains in pharmaceutical and managed care companies.

Tuesday proved to be the best day for markets as investors reacted optimistically to reports of slowing infection rates and hospitalizations in some of the US&#39;s hardest-hit territories. News about governors assembling regional coordinating committees to plan for the gradual reopening of their economies also boosted sentiment. Another factor causing a rally on Tuesday, was a so-called &quot;short squeeze&quot; that formed in the markets as airlines, cruise lines, and hotels were the best performing groups after short-sellers were pressured.

This week was the unofficial start of the Q1 earnings reporting season, which started off with some of the major banks reporting their first quarter performance. JPMorgan Chase reported a profit decline of 70%, while Wells Fargo did even worse, reporting an 89% decline in net revenue. Citigroup performed the best, reporting a decline of 46%. Seen from the earnings, the banks are obviously feeling the effects of the coronavirus on their lending margins due to falling interest rates and the rising of loan defaults also has these banks worried. Analysts are expecting that other sectors will be hurt by the pandemic, with overall S&amp;P 500 earnings dropping 14.5%.

The week&#39;s economic data highlighted the challenges that corporations face and caused a downturn on Wednesday. Retail Sales in March dropped 8.7%, which is the largest decline on record and was below forecasts. On Thursday, the Labor Department reported that an additional 5.2 million citizens had filed for unemployment claims, which makes the total for the past four weeks to 22 million people losing their jobs.

Friday ended on a positive note after reports suggested that some infected patients have been recovering quickly after receiving treatment with Gilead Sciences&#39; antiviral medication. Furthermore, Boeing announced that it is planning to restart production of widebody jets in Washington next week, which boosted the company&#39;s shares and supported sentiment overall.

The major US indices were higher for the week as the S&amp;P 500 index gained 2.83%, the Dow Jones industrial average was up 2.21%. The Nasdaq Composite index outperformed all indices, advancing more than 6%.

*European Markets*

European markets also ended the week slightly higher on average after US President Donald Trump announced plans to start reopening the US economy as well as hopes for a treatment for the coronavirus emerged. The major indices were mixed for the week, as the Stoxx Europe 600 index was up 0.61%, Germany&#39;s Dax 30 gained 0.66, while the FTSE 100 dropped 0.93%.

Some of the European countries are extending their lockdowns while also making plans to reopen their economies as the coronavirus crisis seems to abate. In France, the lockdown will continue until May 11 and then they are planning to open schools. Italy, which extended lockdown measures until May 3, has begun outlining plans to open the economy. UK policymakers said that the lockdown in the island nation could last at least another three weeks. Meanwhile in Denmark, children are back in nurseries and primary schools. In Germany, automakers are expected to resume production next week and Spain also allowed workers in non-essential industries to return to work.

Eurogroup finance ministers agreed on a EUR 500 billion package of measures supporting businesses, workers, and sovereigns through the coronavirus crisis. An agreement was reached after the Dutch backed away from demands that lending by the bailout fund should be subject to tougher conditions. The new measures include revised pandemic credit lines from the European Stability Mechanism, a boost to the lending capacity of the European Investment Bank and a new EUR 100 billion unemployment insurance scheme. The package is mostly reliant on loans that would add to already large debt burdens. Ministers also agreed to create a recovery fund designed to help the single-currency area bounce back after the coronavirus crisis, but Paris and Berlin are divided over how it will be financed.

On Friday, French President Emmanuel Macron warned that the eurozone could collapse unless there is an agreement on a recovery fund. He said there was no choice but to set up a fund that could issue common debt with a common guarantee to finance member states according to need rather than the size of economies.

Italian and peripheral government bonds came under pressure after the Eurogroup failed to agree on how to finance a recovery fund. Italy&#39;s 10-year yield rose to a four-week high of more than 1.8%, and yields on bonds issued by Greece, Portugal, and Spain also moved higher, as investors began to focus on the creditworthiness of individual countries.

Christine Lagarde, the President of the ECB, stated at an IMF meeting that the central bank is ready to do whatever is necessary within its mandate to help the euro area battle the crisis that is coming. Lagarde stated that the central bank is prepared to increase its asset purchases and adjust its compositions as much as necessary. The ECB is getting ready for a large contraction of the economy and falling inflation is definite initially.

The IMF predicts that the eurozone economy will shrink by 7.5% this year before partly recovering and growing 4.7% in 2021. It also forecasts that gross public debt will rise by around EUR 800 billion from 2019 to 2020 and reach 97.4% of gross domestic product, which is much higher than during the sovereign debt crisis. Greece and Italy will have the highest debt burdens this year among euro area countries, exceeding 150% of GDP. Some other states, including France, Spain, and Portugal, will have debt burdens of more than 100% of GDP.

*Asian Markets*

Asian markets ended the week higher as the Japanese Nikkei 225 index gained 2%, while in China the Shanghai Composite Index gained 2% and the large-cap CSI 300 advanced 2.3%.

On Thursday, the government widened the state of emergency to the entire country, and although it is not an official lockdown order, the prime minister gave authorities more power to urge businesses to remain closed and residents to stay at home until May 6. The government&#39;s goal is to limit travel during the Golden Week.

The Japanese Health Ministry is urging people to limit contact with others because if no immediate measures are taken to reduce contact between people,the second wave of infections could result in 850,000 seriously sick people.

Based on an IMF projection, the Japanese economy is expected to contract 5.2% this year and will rebound close to 3% in 2021. These calculations assume that the coronavirus will recede in the second half of the year and that fiscal and monetary stimulus actions are effective in preventing large bankruptcies and extended job losses.

In China, Q1 GDP results were headline stories as the economy declined 6.8% , which was within the broad range of forecasts. March retail sales fell 15.8% compared to last year, , while industrial output only fell 1.1% compared to a forecast of a 6.2% decline.

While a deep first-quarter GDP shock was expected, there is a strong consensus among both international and local analysts that since it was the first country to be hit by the coronavirus, China will also be the first economy to lead the way out. Earlier in the week, China&#39;s customs trade data for March were welcomed as being better than consensus. Total exports in value terms declined 6.6% year on year, much better than their 17.2% contraction during January and February.

Weekly Market Commentary (April 13 – April 17)

**Market themes and outlook for March 2020**

In March, markets collapsed in a way not seen since the Global Financial Crisis. With the rapid spread of the coronavirus in the western world, governments enacted strict measures to contain the pandemic. By doing so, they also artificially ‘turned off’ the global economy, and thus triggering the deepest recession of modern history. As investors were struggling to estimate the length of the coronavirus and the depth of the recession, risky assets sold-off without differentiation. The turmoil was further exacerbated by thin liquidity, hedge fund deleveraging and forced selling too.  

While doomsayers are still expecting newer lows, we believe that we have already seen the worst. To be fair, we are not saying that markets cannot fall somewhat from current levels, neither that volatility will cease instantly. However, we do believe that even some pessimistic outcomes are now priced in. As shown in our previous report, zero cashflows in the next few quarters only imply a ~10-15% decline, which could be larger due to the increased uncertainty and thus higher discount factor. As the spread of the coronavirus slowed significantly in those countries that were hit first, coupled with the most recent macroeconomic data reflecting the impact, some of these uncertainties were lifted, and thereby justifying the rebound in early April. To conclude, we believe that long-term investors should 1. top up in those holdings that are structurally poised for growth, 2. look through near term volatility and thus 3. stay invested.


**US**

As of 10th of April, there were almost 426 thousand confirmed cases in the United States, out of which ~162 thousand are registered in New York alone. To contain the virus, street restrictions and several other measures were enacted large US cities. To fight the economic impact, the Federal Reserve delivered two emergency rate cuts, bringing down the target benchmark rate to a range of 0% to 0.25%. In addition, the US government passed a 2.2 trillion USD bill that will be distributed among households , SMEs, the healthcare industry, etc. 

The number of Americans seeking unemployment benefits continued to surge at unprecedented levels, bringing the total number of applications to nearly 17 million since the coronavirus pandemic paralyzed the U.S. economy. 

In terms of US politics, Bernie Sanders has officially suspended his presidential campaign, leaving Joe Biden as the only democratic contender.


**Europe**

As of 10th of April, there were 152 and 144 thousand confirmed cases in Spain and Italy respectively, but total new confirmed cases in the last 24 hours declined to 5756 and 4204 cases ‘only’.

The European Central Bank (ECB) has launched an emergency €750bn ($820bn; £700bn) package to ease the impact of the coronavirus pandemic. On the fiscal front, Germany is planning to increase borrowing by as much as 150 billion euros ($160 billion) this year as well as to pass a 156 billion euro ($167 billion) supplementary budget. The government led by Chancellor Angela Merkel is also setting up a 500-billion-euro bailout fund to take stakes in critical industries, according to various media reports. Other European countries are also preparing stimulus packages.

The business climate indicator in the Euro Area dropped 0.22 points from the previous month to -0.28 in March 2020, the lowest since December and below market expectations of -0.05, as the Covid-19 crisis deepens.


**China**

New cases has levelled off in China, registering only 50-100 new cases each day for the last few weeks. Consequently, China lifted 76-day lockdown on Wuhan. 

The Caixin China General Services PMI rose to 43.0 in March 2020 from a record low of 26.5 in the previous month. The Caixin China General Manufacturing PMI jumped to 50.1 in March 2020 from a February's record low of 40.3, easily beating market consensus of 45.5 and signaling a broad stabilization of business conditions. Output rose slightly as more firms reopened following widespread company shutdowns and travel restrictions in February amid the COVID-19 outbreak. Meanwhile, demand remained fragile, with new orders falling for the second straight month and export sales declining sharply. Employment also fell further due to a combination of voluntary leavers and efforts to cut costs, while capacity pressures persisted. Supply chains remained under pressure, lengthening at the second-quickest rate in just over 12 years.

China’s central bank said in early April it was cutting the amount of cash that small banks must hold as reserves, releasing around 400 billion yuan ($56.38 billion) in liquidity to shore up the economy, which has been badly jolted by the coronavirus crisis. (Source. Reuters)


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March 2020

**Weekly Market Commentary (March 30 – April 03)**

**Global Market Highlights**

- **Equities close worst quarter since the 2008 financial crisis**

- **Jobs data started to show epidemic impact**

- **Virus death toll rises in Europe, but new cases subside**

- **Italy forecasts a 6% fall in 2020 GDP**

- **Japanese business sentiment tumbles**



**US Markets**

Major US equity indices fell for the week and closed their worst quarter since the 2008 financial crisis. Small-cap indices fell the most this week, by a large margin, as the Russell 2000 dropped close to 7% in a sell-off on Wednesday. Energy shares outperformed within the S&amp;P 500 benchmark index  as oil prices surged on Thursday following the President&#39;s tweet about expecting Saudi Arabia and Russia to cut production. Investors also liked the fact that Saudi Arabia called an emergency OPEC meeting, while China is planning to buy oil for its emergency reserves. As long-term yields continued their decline, interest rate sensitive sectors such as financials and real estate  shares dropped. Consumer discretionary were also weak as cruise line operators fell to new lows and reached multi-decade lows.

After four weeks, the major indexes posted a gain on Monday and positivity continued into Tuesday, helped by a tweet from Donald Trump calling for a &quot;phase four&quot; round of stimulus based on a $2 trillion infrastructure bill. Democratic leaders appeared enthusiastic about the idea, though some Republicans did mention that new spending initiatives should wait until recently passed legislation is carried out and the economic needs become more apparent.

However, deepening worries about the length and severity of the coronavirus sent equities lower. Traders observed that discouraging virus statistics from New York and California appeared to undo Tuesday&#39;s market rally. Wednesday morning, equities dropped as investors reacted to the previous evening&#39;s White HOuse briefing, where officials warned of the possibility of up to 240,000 deaths in the US, even with the mitigation efforts in place.

Equities seemed to recover some of the losses on Thursday, helped by substantial rebound in oil prices, but fell back as the week&#39;s economic data reflected the huge impact of the coronavirus , especially on the job market. Jobless claims were close to doubling compared to the previous week, with over 6.6 million Americans applying for government benefits, which was well above the pessimistic estimates. Nonfarm payrolls fell by 701,000 in March, which was seven times worse than estimates predicted.   The unemployment rate was lifted to 4.4%, which is its highest level since 2017.

US indices continued their fall as the S&amp;P 500 benchmark index fell more than 2%, while the Dow Jones index dropped 2.7% and the Nasdaq Composite Index  shed 1.72%.  On a YTD basis, equities paint a worrisome picture as the S&amp;P 500 is down 23%, the DJI lost 26% of it&#39;s value and the Nasdaq Composite index shed 17.83%.

**European Markets**

Equities in Europe lost momentum during the week, staying almost unchanged as data indicated that the economy will suffer a severe recession this year because of the coronavirus epidemic. The Stoxx Europe 600 index lost 0.45%, while in Germany, the Dax 30 index dropped 1%. In France, the CAC 40 declined 4.26%, while the FTSE 100 weakened 1.3%, mostly due to a stronger pound, which weighs on exporters, a significant part of the index.

Deaths from the COVID-19 virus accelerated in Italy, France, Spain, Germany, and the UK as well, exceeding 30,000 deaths across the region. However, the number of new cases in Italy, and hospital admissions in Spain and France slowed as country lockdowns are showing signs of virus containment. In Germany, the lockdown was extended until April 19th, while in Italy it was extended until April 13. In the UK, according to health officials, the lockdown measures could last for up to six months.

In Europe, insurance and banking stocks fell as the BoE and the EIOPA (European Insurance Occupational Pensions Authority) urged banks, insurers, and reinsurers to suspend dividends and share buybacks for a while, to ride out the hit from the virus. Banks have suffered more than insurers as risks from loans to small and medium enterprises are represented on their balance sheet  more vividly.

Roberto Gualtieri, Italy&#39;s finance minister, stated that a forecast of a 6% drop in GDP in 2020 seems pretty realistic. Although, in March the Italian Treasury expected the economy to only ccontract 3%. Gualtieri said that the new stimulus, due to be approved this month, would be much larger than the €25 billion package passed in March and would include an extension of state-backed guarantees for firms and support for people on low incomes.

**Asian Markets**

Asian markets were down for most of the week as the Japanese Nikkei 225 dropped 8.1%, down close to 25% for the year, while the Chinese Shanghai Composite index dropped 0.3% and the CSI 300 stayed almost unchanged.

The quarterly BoJ Tankan index showed a drop in business sentiment, but the results were not as bad as expected. The index stands at its lowest level since 2013 and has recorded its longest streak of negative readings since the Lehman Brothers collapse in 2008. Most of the analysts believe that the index will continue its free fall as the impact of the coronavirus unfolds.

For the Japanese fiscal year, which ended on March 31st, net profits at public companies are expected to decline 13%, which is almost twice as much as the estimates in November. The large decline is attributed to the coronavirus, falling demand, and the ongoing supply chain disruptions from the US -China trade war. According to the latest statistics, Japanese companies are expected to lose $12 billion.

Markets seemed calmer after the Chinese Politburo meeting on March 27th, where policymakers called for more fiscal stimulus to stabilize the economy. The Coronavirus pandemic is still present in China and a county in Henan province is expected to undergo a second lockdown due to a small number of infected people.

March PMIs in the country were optimistic as the Caixin manufacturing PMI bounced back to 50.1 points from a record low of 40.3 points. This is explained by the fact that most of the sectors are back to normal operation. The March rebound was expected, but new export orders, one of the key components of a PMI, were less reassuring.

On Monday, the PBOC cut the interest rate on reverse repo agreements while also cutting the required reserve ratio for smaller rural and commercial banks. In another easing step, the Chinese central bank cut its interest rate on excess bank reserves from 0.72% to 0.35% for the first time since 2008, in a signal to banks to increase their lending.

Weekly Market Commentary (March 30 – April 03)

**Weekly Market Commentary (March 23 – March 27)**

**Global Market Highlights**

- **Fiscal stimulus fuels record rally**

- **Federal Reserve announces new support measures**

- **Europe tightens lockdown**

- **EU suspends deficit rules**

- **Rising number of cases in Japan**



**US Markets**

US equities rebounded from multiyear lows, as investors appeared encouraged by very aggressive monetary policy actions and the passage of an unprecedented level of fiscal stimulus. On Tuesday, the Dow had its best day since 1933, and the S&amp;P 500 index had its largest rally since 2008, with all the major US equity indices surging by around 9% to 11%. Even though the markets had a great week, major indices surrendered a portion of their gains to close out the week.

Beaten down energy shares outperformed after oil prices began to stabilize somewhat and as US policymakers put pressure on Saudi Arabia to end its price war with Russia. Airline shares also rallied as news emerged of a $60 billion bailout package for the industry as part of the stimulus bill passed by Congress, and a rebound in Boeing boosted the industrial sector as well. Communication sector lagged, but utilities gained.

The week started poorly  as a $2 trillion stimulus plan  failed to clear a procedural hurdle in the Senate for the second time in two days, with Democrats objecting to a lack of transparency in how a $500 billion loan program would be used and overseen. Markets gained on Tuesday, after House Speaker Nancy Pelosi stated that she was hopeful that a deal would be reached imminently. At his daily press conference, President Donald Trump stressed the need to act quickly and stated his hope that the economy would begin moving back to normal by Easter.

On Tuesday, the White House and congressional leaders agreed on a $2.2 trillion stimulus package, which includes a $350 billion support for small businesses, as well as a $1200 direct payment to lower-middle-income adults and $500 per child. The bill also talked about extending unemployment insurance and provided additional funding for providers of healthcare services.

The Fed expanded its own stimulus measures, boosting both equity and fixed income markets. On Monday, the central bank stated that it was not setting a limit on its purchases of Treasuries and agency mortgage backed securities while also beginning to purchase investment-grade corporate bonds. Furthermore, the central bank reinstated the Term Asset-Backed Securities Loan Facility, which was originally launched in 2008, which is designed to support bonds backed by student loans and car loans as well as other types of asset-backed securities.

The major US indices performed really well for the week as the S&amp;P 500 benchmark indexed gained 10.26%, the Dow was up 12.84%, and the Nasdaq Composite index advanced 9% for the week.

**European Markets**

European shares also gained for the week, snapping four consecutive weeks of losses, as nations laid out unprecedented economic stimulus measures in Europe and the US calmed markets and made investors more optimistic about a recovery. Most of the major European indices gained 5% to 8%, while the UK&#39;s FTSE 100 was 5.95%.

As the coronavirus spreads quickly across the globe, Italy, Spain, and the UK imposed substantial restrictions on population movement and gatherings as confirmed cases and deaths surged to new highs. The Spanish Prime Minister extended the state of emergency for another 15 days, while in the UK, policymakers approved a Draconian emergency legislation which allows them to requisition large conference centers to set up critical care centers for the sick , and launched a financial support package for the self-employed. On Friday, Boris Johnson announced that he had tested positive for COVID-19, although he said his symptoms were mild and he planned to continue leading the government while being self-isolated.

Germany also put restrictions on everyday life as the government banned meetings of more than two people. Chancellor Merkel also went into self-quarantine for two weeks after a doctor who gave her a vaccine tested positive. She has already passed two tests and will be tested a third time as well.

European Union finance ministers suspended the bloc&#39;s deficit rules so that governments could increase spending to protect their economies. The ministers also discussed a plan for using the European Stability Mechanism, the EU&#39;s bailout fund, to provide crisis support. However, during a videoconference summit, EU leaders failed to agree on a collective strategy to combat a deep EU recession, with Germany and the Netherlands rejecting a proposal to issue joint bonds. The leaders mandated the Eurogroup of finance ministers to report back in two weeks with proposals for a joint response. Meanwhile, the European Central Bank said it would remove some of the self-imposed limits on its €750 billion of asset purchases to support the economy, triggering a rally in peripheral bonds.

The intensification of the coronavirus led to a collapse in eurozone business activity in March. The composite index of services and manufacturing posted the largest monthly fall since 1998. Demand for goods and services fell dramatically, while supply chain disruptions slowed production. Jobs were cut at the fastest rate since the financial crisis as companies shuttered and a large part of the economy was shut down. According to analysts, that eurozone GDP would contract at a quarterly rate of about 2%.

The coronavirus caused a sharp decline in production as well as in business activity. The close of entire economies could cause the sharpest recession since WW2. The economy could shrink more than 6% in the first half of the year if restrictions last until the beginning of May and more than 9% if they last until the end of June. The recession will be followed by a V-shaped economic recovery in the second half of the year which will be just as fast as the fall of the economy.

**Asian Markets**

Asian markets have catapulted as the Japanese Nikkei 225 index gained 17.1%, while the Chinese Shanghai Composite Index added 4.2%, and the CSI 300 index advanced 5.2%.

The number of new infections in Tokyo increased to record levels. The governor urged citizens to stay at home and warned that the world&#39;s biggest city could face an explosive spike in new cases following the report of 41 new infections in Tokyo on Wednesday. The governor also asked universities to delay the start of the new school year, which was set to begin in April. They are not declaring a state of emergency in Tokyo at this time, but they are closely monitoring the situation.

In its March review, the Japanese government downgraded its overall assessment of the economic conditions to &quot;severe&quot; from moderate recovery in February. The downgrade reflects the impact of the coronavirus and faltering private consumption, capital spending, imports, and business confidence. It also marks the first time since 2013 that &quot;recovery&quot; has not been cited in its monthly assessment.

According to sources, Prime Minister Shinzo Abe and his cabinet are working to implement an economic stimulus package totaling ¥56 trillion now that the fiscal budget for 2020 passed. The stimulus effort represents approximately 10% of the country&#39;s gross domestic product and would be the largest in Japanese history. The initiative, including cash payments to households whose incomes have been impacted by the coronavirus outbreak, are expected to begin in May and approximate ¥200,000 to ¥300,000 ($1,800 to $2,700) per eligible household. Additional stimulus measures include direct government spending and loans from financial institutions.

The government also intends to issue coupons and gift certificates for restaurants and other businesses that have been impacted by the outbreak. Earlier this month, the Bank of Japan committee members voiced their support for additional financing and other measures to stabilize financial markets.

The Prime Minister also announced that they will postpone the Tokyo Olympic Games until the summer of 2021. This delay is expected to cause a 1% contraction in japan&#39;s GDP in the coming fiscal year.

In China, schools in areas deemed free of the coronavirus have begun to reopen, though they will remain under close supervision, beginning with Qinghai, Guizhou, and Xinjiang. The economically important coastal province of Jiangsu is aiming for the full opening of all schools and colleges by April 13. Museums and some national restaurant chains that have been closed since late January are also beginning to reopen.

So far China has not released any major fiscal stimulus package to counter the effects of the virus. Although some stimulus is expected and new domestic projects intended to boost economic activity will be implemented at the local government level. Press reports say that after two years of fiscal deleveraging, local government infrastructure project needs have grown significantly. However, China&#39;s public sector finances are under growing pressure from the national lockdown. Tax receipts in January and February fell 9.9% from the previous 12-month period, to RMB 3.52 trillion. Total central government revenues declined 11.2%, and those of local governments fell 8.6%, according to new data from China&#39;s Ministry of Finance.

Weekly Market Commentary (March 23 – March 27)

**Weekly Market Commentary (March 16 – March 20)**

**Global Market Highlights**

- **US equities are down close to 30% YTD**

- **Tourism and energy stocks suffered the worst declines**

- **More monetary stimulus measures**

- **Companies start to feel the virus**

- **Chinese economic data weaker than expected**

**US Markets**

US equities  suffered a steep loss as concerns got worse about the spread of the coronavirus and its impact on the global economy.  The S&amp;P 500 benchmark index fell back to its lowest level since the beginning of 2017, while the Dow reached lows not seen since 2016.

The decline was the largest on Monday, when the Dow suffered its largest one-day percentage loss since 1987 as well as the Nasdaq Composite index experienced its sharpest daily decline on record. Even though the Federal Reserve announced that it would slash the federal funds target rate to the 0.00% - 0.25% range and restart its aggressive purchase of Treasuries and agency mortgage-backed securities. This was a week of records, as on Monday, the Cboe Volatility index, or VIX, reached its highest level on record, surpassing the peak reached in 2008. Circuit breakers were triggered on Monday and Wednesday to keep trading orderly.

Energy shares were the worst performers within the benchmark index. Oil prices for the week were very volatile and ended the week much lower, furthermore, hospitality and airline stocks were also weak this week. Consumer discretionary stocks showed resilience, helped by the rise in Amazon.com shares, which announced that it is getting ready to hire 100,000 workers to meet booming demand.

There were a lots of factors that drove markets down, but some of the most important factors were these:

- US President Donald Trump stated that the virus might not be contained until late summer, while governors and mayors announced closures of schools, restaurants and most of the public facilities.
- Global growth forecasts were slashed by the large major banks, while many also predict that the US economy will fall into a recession.
- The three largest US automakers agreed to union requests to shutter factories temporarily.
- Oil prices dropped to levels not seen in almost 20 years.
- A hedge fund manager stated that he is expecting an economic depression, but it could be avoided with proper actions.

US equity indices were down double digit this week, one of the worst weeks on record. The S&amp;P 500 benchmark index lost 14.98%, the Dow Jones industrial average was down 17.30%, and the Nasdaq Composite Index shed 12.64%. Year-to-date the indices are down 28.66%, 32.81%, and 23.33% respectively.

**European Markets**

European equity markets posted steep losses just like their North American counterparts as countries imposed lockdowns and economies faltered raising the prospect of a prolonged recession. The pan-European STOXX Europe 600 Index fell 1.85%. Germany&#39;s Xetra DAX Index slipped 3.56%, France&#39;s CAC-40 Index declined 2.51%, and Italy&#39;s FTSE MIB Index dropped 0.4%. The UK&#39;s FTSE 100 Index slid 2.78%.

The sell-off continued in the early part of the week despite government pledges of further fiscal support and central bank injections of economic stimulus, as countries moved into lockdown and closed borders or tightened border controls to contain the coronavirus outbreak. In the European Union, governments considered a sizable fiscal package to support economies. Finance ministers agreed to an increase in spending of 1% of gross domestic product and discussed how the European Stability Mechanism might be used to tackle the crisis. German Chancellor Angela Merkel said the federal government would not rule out joint EU debt issuance to help contain the impact of the coronavirus.

In Spain, Prime Minister Pedro Sanchez pledged fiscal support of €200 billion, while the government announced measures to take over private health care providers. Sweden&#39;s central bank increased quantitative easing after an emergency meeting, and Denmark introduced liquidity measures for jobs and businesses.

The Bank of England said it would create a corporate financing facility to provide funding for businesses. Prime Minister Boris Johnson began gradually introducing more stringent social measures to contain the outbreak in the UK. Meanwhile, after the head of the Austrian central bank said monetary policy had reached its limits, the ECB issued a statement reiterating that it stands ready to adjust all its instruments to cope with the crisis.

European equity markets bounced back on Thursday and Friday, after the BoE decided at an emergency meeting to cut the bank rate by 15 bps to 0.10% and increase asset purchases by £200 billion.

The ECB announced that, in addition to the €120 billion of stimulus announced last week, it was creating a €750 billion Pandemic Emergency Program covering both sovereign and corporate bonds. The ECB also said it would not tolerate any risks to the smooth transmission of its monetary policy in all jurisdictions of the euro area. The Norwegian central bank cut its key interest rate by 75 bps to 0.25%, the second reduction in a week. The German government was considering a €500 billion rescue fund for banks and other firms.

Several European companies started to revise or suspend earnings guidance on expectations of a larger slowdown. Some companies are also withholding dividend payments in the UK. Travel stocks were some of the hardest hit as the EU stated that it would curb most foregn travel for 30 days, while airlined announced measures, including grounding fleets, reducing flights, and laying off employees.

**Asian Markets**

Asian markets held up better than their American counterparts, as the Nikkei 225 index in Japan declined 5%, down 30% YTD. Chinese equities were also dropping, as the Shanghai Composite Index dropped by 4.9%, while the CSI 300 index lost 6.2%.

According to sources, Prime Minister Shinzo Abe has formed a panel of key economic ministers, including BoJ governor Haruhiko Kuroda, to discuss measures to boost Japan&#39;s economy, which has been hit by the epidemic. The discussions will help to shape a stimulus package which the government intends to launch in April.

The Japanese government will consider tax cuts and other measures to deal with the faltering economy. Several ruling party lawmakers have proposed a temporary suspension of the 10% sales tax and are preparing a ¥30 trillion supplementary budget to support economic growth. Prime Minister Abe said that the proposal for cutting the sales tax was among the options under consideration to bolster the economy.

China&#39;s fixed asset investment shrank 24.5% in January and February, much steeper than the consensus estimate of a 2% fall. Industrial production declined 13.5%, and retail sales fell 20.5%. In response to the disappointing data, brokers and economists cut their GDP growth forecasts for the first quarter and for 2020 overall. Some investment banks believe the annual fall in first-quarter GDP may be as much as 9%.

While the extent of the declines in key monthly economic data was jarring, investors will be watching whether China&#39;s economy remains on a recovery path and if Beijing can jumpstart the process via appropriate policy innovations. On the first point, the high frequency data are continuing to improve. Daily coal consumption is around 80% of the normal level, while around 65% of migrant workers have returned to their place of work. Mass transit journeys remain about 70% below normal, though strict quarantine arrangements are being rapidly loosened by local authorities across China.

On the second point, it appears that China intends to rely more on additional construction and infrastructure spending to reboot the economy than on direct income transfers to all households in a particular locality.

The People&#39;s Bank of China surprised markets by not following the Fed and 17 other central banks in cutting interest rates at its monetary policy meeting on March 20. The interest rate for five-year bank loans remains at 4.75%, which is relatively high compared with elsewhere in Asia. This possibly reflects a view that it may be better not to stimulate demand until supply has returned to normal. Given the strong depreciation pressure on some Asian currencies, the PBoC may also wish to preserve a relatively wide rate differential versus the U.S. to maintain a stable renminbi.

Finally, the sharp drop in economic activity in the first quarter has little or nothing to do with the cost of credit, nor in current circumstances is weak credit demand likely to respond to a cut in rates. As a result, the PBoC may have decided it is prudent to keep some ability to cut rates in reserve. That said, most China analysts believe the PBoC remains committed to an easing path in the coming months.

Weekly Market Commentary (March 16 – March 20)

**Weekly Market Commentary (March 09 – March 13)**

**Global Market Highlights**

- **It was a historic  week**

- **Equities enter bear market**

- **ECB unveils new stimulus measures**

- **European governments intervene in markets**

- **The BoJ is preparing to make a move**

**US Markets**

Equities in the United States suffered a week of historic losses as they entered into bear market territory as worries deepened about the impact of the novel coronavirus outbreak. The Dow Jones Industrial Average fell 28% from its recent peak to its Thursday low and the S&amp;P 500 index was down 27%. This was the fastest onset for a bear market in the history of the stock exchange and the Dow suffered its worst decline since 1987 on Thursday.  The Vix volatility index reached its highest level since the 2008 financial crisis and circuit breakers across the globe were triggered, which are designed to halt trading when the benchmark indices fall by a predetermined amount, in the case of the S&amp;P 500 this is 7%. On Monday and Thursday, these circuit breakers were deployed for the first time since 1997.

All of the S&amp;P 500 sectors fell drastically, but energy shares fell the most as the price of oil tumbled. Technology, communication services, and healthcare shares held up the best.  As travel bans were put in place and events were cancelled, shares in the affected industries fell the most during the week. Some of the cruise ship operating companies shed close to half of their value and airline shares accelerated their declines after President Donald Trump announced a 30-day ban on travel from most European countries to the US.

As there are a lot of factors to the recent sell-off, it can be broken down into four major drivers:

1. On Monday, crude oil prices dropped close to 25%, which is the most since the Gulf War in 1991 following Sauid Arabia&#39;s decision to radically increase exports in order to drive down prices and punish Russia for its refusal to follow production limits.
2.  Confusion arose as the president&#39;s surprise announcement of the European travel ban seemed to unsettle markets, and investors also appeared disappointed that the address did not include firm details on a broad fiscal stimulus plan. Furthermore, the President urged Congress to pass legislation cutting payroll taxes, but Democrats in the House proposed a relief targeted at lower-income individuals instead.

1. The number of COVID-19 cases climbed sharply over the week, while delays in supplying testing kits led many experts to caution that the actual number of cases was much higher. The cancellation of major sporting and cultural events seemed to highlight the severity of the outbreak, as did reports of new quarantines and the WHO&#39;s official designation of a global pandemic.

1. Signs of stress in credit markets emerged early in the week, while borrowing costs for energy companies and other stressed industries jumped sharply. Particularly prominent was Boeing&#39;s decision to draw down a $13.8 billion credit line to help it deal with falling airline demand and its MAX 737 problems.

The equity market was not the only market hit, as the Saudi move to cut oil prices triggered a record sell-off in high yield bonds on Monday. Issuers from energy-related sectors account for a large proportion of the U.S. high yield bond market, so the plummeting oil prices suddenly put the fundamental condition of these energy companies under pressure and damaged their ability to repay their debt going forward.

Markets suffered one of the largest drops since the financial crisis, as the S&amp;P 500 index dropped 8.79%, the Dow Jones Industrial Average shed 10.36%, while the Nasdaq Composite index lost 8.17%.

The bigger picture on a YTD basis shows an even darker view on equity investing as all three of the benchmark indices have a double digit loss, while the Russell 2000 index has a -27.54% return YTD.

**European Markets**

European shares fell into a bear market after a heavy sell-off sparked by events such as the spreading of the coronavirus, the US decision to restrict travel from Europe, a plunge in oil prices sparked by the collapse of the OPEC-Russia alliance, and disappointment with measures that stopped short of a coordinated fiscal stimulus. Most of the major indices, including the European STOXX Europe 600 index and individual country indexes for the UK, France, Germany, and Italy generally declined 15% to 20%.

The ECB approved fresh stimulus measures to help the eurozone economy cope with the growing cost of the coronavirus epidemic but interest rates were unchanged, which disappointed market participants. The central bank said that it would offer fresh loans to banks, provide previously agreed liquidity facilities at even more favorable rates, and temporarily increase assets by EUR 120 billion until the end of the year.

Italy increased its emergency economic measures and suspended mortgage payments to mitigate the consequences of imposing nationwide quarantine restrictions. The government said it would inject €10 billion into the economy, up from €7.5 billion the day before.

In coordinated UK monetary and fiscal policy moves, a 50 bps interest rate cut by the Bank of England preceded the announcement of a £30 billion spending package in the annual budget to help the economy weather the coronavirus outbreak. Chancellor of the Exchequer Rishi Sunak also announced that he would abolish property taxes on business for many firms in England, extend sick pay, and boost funding for the National Health Service. Apart from lowering rates to 0.25%, the BoE announced a £100 billion cheap funding scheme for banks that is designed to support small businesses and relaxed financial regulations so that lenders will be able to pump an extra £200 billion of credit into the economy.

The German government also introduced measures to help companies hit by the coronavirus outbreak and announced an additional €12.4 billion in state investment in infrastructure over the next three years. However, the measures stopped well short of the fiscal stimulus demanded by economists and companies. A poll by the Association of German Chambers of Industry and Commerce showed that half of all German companies expect their revenue to shrink this year as a result of the coronavirus.

In Italy, Spain, and the Uk, authorities imposed measures to stabilize asset prices as the record declines came close to paralysing markets. Spanish and Italian regulators banned short selling after equity markets recorded their worst-ever one-day decline. On Thursday, the Fed injected half a trillion dollars into the financial system.

**Asian Markets**

Asian markets also declined and in Japan, the Nikkei 225 entered bear market territory as it is down 26.3% for the year. For the week, the Nikkei 225 shed 16%, while in China the Shanghai Composite Index fell 4.8% and the CSI 300 index was down 5.9%.

Traders are expecting the BoJ to loosen its monetary policy at its March 18-19 policy meeting. Plunging equity markets, the strengthening yen, and concerns about the coronavirus are weakening investor confidence and curtailing business investment, which could derail Japan&#39;s already fragile economic recovery.

The Japanese central bank is also widely expected to continue stepping up its volume of ETF purchases. Their pledge of purchasing ETFs at a faster pace could help put a floor under the stock market and prevent sentiment from dropping further. Since the beginning of March, the central bank has purchased about ¥100 billion per day and the bank is expected to continue at this pace until the end of the fiscal year.

China has been the most resilient when it comes to its equity markets and one of the main reasons that could point to this relative resilience is that the number of new cases in China has fallen sharply.

China appears to be incrementally rebooting its economy after a forced one-month shutdown. Coal output for power stations is currently 34% above the February average, for example. Restaurant chains are reopening in China&#39;s major cities, having been closed since late January. And construction has achieved a 58% restart rate, according to China&#39;s housing ministry. In the logistics industry, economic powerhouse Shenzhen reported that conditions were almost back to normal. This suggests a potential V-shaped rebound in the purchasing managers&#39; index surveys for March.

Weekly Market Commentary (March 09 – March 13)

**Weekly Market Commentary (March 02 – March 06)**

**Global Market Highlights**

- **Coronavirus volatility**

- **Emergency interest rate cut fails to accelerate markets**

- **ECB ready to act against the virus outbreak**

- **Japan issued travel restrictions to slow the coronavirus**

- **China equities positive for February**

**US Markets**

The major US equity indices were mixed for the week after a second week of increased volatility driven by the COVID-19 virus outbreak. Thanks to a sharp rally on Monday and Wednesday, the large-cap benchmark indexes and the Nasdaq Composite index recorded smaller gains, while the smaller-cap indices ended the week lower. Within the S&amp;P 500 index, the defensive utilities sector performed best, while healthcare stocks were also strong after the prospects for Bernie Sanders&#39; &quot;Medicare for all&quot; system seemed to diminish following Joe Biden&#39;s solid performance in many presidential primary elections on Super Tuesday. Energy shares were hit hard as US oil prices plunged to multiyear lows on Friday, following OPEC&#39;s failure to convince non-OPEC member Russia to agree to production cuts.

On Tuesday, markets were surprised by the Federal Reserve&#39;s emergency half-point rate cut, citing evolving risks to economic activity from the coronavirus. Stocks responded to the news positively, but then fell back sharply. Investors might have been disappointed that Jerome Powell&#39;s statement did not include more details on the Fed&#39;s economic outlook.

Treasury yields were also hit hard by the coronavirus as the yield on the benchmark 10-year Treasury note dropped to 0.66% on Friday morning, which is its lowest point in history. The bond market seemed unimpressed by the good payrolls data and the week&#39;s drastic moves in Treasury yields appeared to be another factor driving equity market volatility.

The major equity indices ended the week slightly higher as the rally on Monday and Wednesday erased all of the losses. The S&amp;P 500 index gained 0.61%, the Dow Jones Industrial Average gained 1.71% and the Nasdaq Composite index was up 0.10%.

**European Markets**

European equities resumed their decline as the rapid spread of the COVID-19 virus continued and intensified fears that a global economic downturn is closer than we might think.  The Stoxx Europe 600 index fell 2.21%, the German Dax 30 index slipped 2.77%, Italy&#39;s FTSE MIB suffered a 5.25% loss, and the UK&#39;s FTSE 100 index fell 1.75%.

New fiscal measures are being implemented all over Europe as some countries have already implemented such measures or are planning to release new fiscal stimuli. In Italy, where the outbreak has been the worst, EUR 900 million was released for the northern regions which are hardest hit. Furthermore, Italy followed it up with a EUR 3.6 billion stimulus package and then doubled it to EUR 7.5 billion. In Germany, the finance minister said that the country is ready to enact a fiscal stimulus package if the epidemic sparks a global economic crisis. According to the minister, Germany has the means to act fast and decisively.

ECB President, Christine Lagarde said that the ECB is ready to take appropriate and targeted measures to counter the economic impact of the coronavirus, showing greater willingness to act against the outbreak.

The first round of talks between the EU and the UK on a future relationship ended with both sides showing areas of disagreement. The most important points  of disagreement included the general level of the playing field between the Uk and the EU, fishing rights in UK waters, the role of the European Court of Justice, and how a future deal would be policed. There seems to be less of a desire on the UK side for a comprehensive trade deal with the bloc, as Prime Minister Boris Johnson threatened to walk away from a deal if he believes that insufficient progress had been made by mid-June.

**Asian Markets**

Asian stocks were mixed for the week as the Japanese Nikkei 225 index dropped 1.86%, down 12% YTD, while Chinese stocks rallied. The Shanghai Composite index gained 5.4%, while the CSI 300 large-cap index gained 5%.

After losing more than 9% the previous week, the Nikkei 225 index staged a smaller rebound as supportive actions from the Federal Reserve and comments from other central banks boosted investor sentiment. However, fears about the global economy and the domestic effects of COVID-19 weighed on Japanese equities as stocks dropped 3% on Friday.

Even though several central banks have already released new fiscal stimulus packages, the BoJ only issued a statement that they are closely monitoring future developments and will strive to provide ample liquidity and ensure stability in financial markets through appropriate market operations and asset purchases. The BoJ subsequently announced that it would add 500 billion yen of liquidity through open market operations.

As of March 5, the WHO reported that Japan had 317 confirmed COVID-19 cases more than any other country in Asia, except for China and South Korea. However, there are increasing concerns that the relatively slow pace of testing in Japan undercounts the actual number of people with the coronavirus.

Japan issued new travel restrictions in an attempt to contain the outbreak. Visitors from China and South Korea will have to be quarantined for two weeks, and travelers from some parts of South Korea and Iran that have been hit hard by the coronavirus will be banned. The country also faces questions about its ability to host the Summer Olympics, which are scheduled to officially open July 24 in Tokyo.

The yield on the 10-year Japanese government bond was almost unchanged and finished the week at 0.146%, while the yen strengthened to 105.28 versus the US dollar. The yen has been boosted by demand for historically safer assets in the risk-off environment, while plunging U.S. interest rates have weighed on the greenback.

In China, Domestic A shares were the only major stock market to end february in positive territory as the coronavirus showed signs of having peaked with the situation even improving in Wuhan.

The first significant economic release for February, the official purchasing managers&#39; index  for manufacturing, plunged to a record-low 35.7 from 50.0 in January. This reading came in well below most forecasts and could signal that China&#39;s economy will suffer a worse-than-expected contraction in the first quarter. The Caixin/Markit PMI likewise fell to a record low of 40.3 in February. Higher-frequency economic indicators suggest a similar level of weakness, with coal consumption at China&#39;s top six power plants, for example, 70% below normal levels. While the PMI declines were dramatic, the subindex for future output—a measure of business expectations—reached a five-year high, suggesting that businesses expect economic conditions to improve going forward.

Although much attention has focused on the decline in manufacturing activity, the services side of the economy has also come under severe pressure. Markit&#39;s services PMI fell 25.3 points in February, while the official number from the government fell 24.5 points—nearly twice the decline suffered by the manufacturing indices. The severity of this contraction reflects the person-to-person nature of many services transactions and the prohibitions on travel and public gatherings.

South Korea&#39;s severe outbreak has complicated the outlook for Asian supply chains considerably. A slowing South Korean economy could aggravate supply chain disruptions and make it harder for China to reboot its factories. In 2019, South Korea supplied 18% of China&#39;s and Hong Kong&#39;s need for semiconductors and 43% of memory chips. South Korea also supplied 42% of Vietnam&#39;s semiconductor imports and 26% of Taiwan&#39;s memory chip imports. In response to the coronavirus disruption, Seoul announced a supplementary budget to support the economy.

Weekly Market Commentary (March 02 – March 06)

**Weekly Market Commentary (February 24 – February 28)**

**Global Market Highlights**

- **Fastest market correction in history**

- **Futures markets price in multiple rate cuts**

- **The virus reaches Italy**

- **Chinese GDP rebound likely in Q2**



**US Markets**

Equities suffered their worst weekly decline since the financial crisis  in 2008 as investors reacted to the global spread of the coronavirus - or COVID-19. All the major US indices fell into correction territory and YTD they are down more than 10%. According to analysts, the S&amp;P 500 recorded its quickest correction in history. All the sectors within the benchmark index suffered a correction , with energy stocks performing the worst as oil prices plunged. Communication stocks held up the best as companies such as Netflix proved resilient. The Vix volatility index - or Fear Index - spiked to near 50 points on Friday, which is its highest level since 2008.

As concerns escalated that the COVID-19 virus was turning into a global pandemic led to almost continuous declines throughout the week. As a widening outbreak in Iran, Italy and South Korea and a warning from health officials that an outbreak in the US was all but certain, reports of quarantines in New York and a caution from Mick Mulvaney about possible school closures all added to the sell-off. As declines continued, traders also observed the impact of systematic selling by algorithm-driven strategies.

Even though investors are braced for a drop in corporate profits, signals about the current health of the economy remained mostly positive. Economic data was scarce for the week, but personal income rose 0.6% in January, above expectations, as durable goods orders fell much less than expected. New home sales rose substantially in January.

A key question was if the Federal Reserve would cut interest rates this year after saying that an interest rate cut is unlikely. As of now, the Fed is expected to wait for concrete evidence of COVID-19&#39;s impact on growth before cutting interest rates. Friday morning, St. Louis Federal Reserve President James Bullard seemed to add to a sell-off in the futures market when he said in a statement that the Fed&#39;s current stance was &quot;in a good position&quot; and that the &quot;baseline case&quot; was for no change in rates. Markets recovered a bit later in the day, after Jerome Powell issued a statement acknowledging that the outbreak was &quot;posing evolving risks,&quot; while promising that the Fed would use their tools and act as appropriate to support the economy. Federal funds futures as tracked by CME Group ended the week pricing in a 100% chance of a rate cut by the Fed&#39;s next meeting in March, with a roughly 58% chance of at least a full percentage point of cuts by the end of the year.

US indices suffered their largest drop since the global financial crises. The S&amp;P 500 index dropped 11.49%, the Dow Jones industrial average shed a staggering 12.36% and the Nasdaq Composite index fared the best with its 10.54% decline.

**European Markets**

European shares also fell the most since the 2008 financial crisis on fears of the rapid spread of the coronavirus and its impact on the global economy. Most of the European indices fell 11% to 12%.

The sell-off started after the outbreak spread to Italy, where the authorities moved quickly to contain Europe&#39;s largest outbreak of the COVID-19 virus, sealing off 11 towns. So far, the virus has claimed 17 lives and infected 655 people in the region where factories supply key components to European industry. Italian shares fell more than 11% over the week as fear of a technical recession in Q1 increased, which would be the fourth in 12 years.

ECB officials in France and Italy pressured governments that they must take fiscal steps if the COVID-19 virus has a deeper impact on economic growth. Central bankers talked about daily monitoring of the situation and creating contingency plans to prepare for any economic impact even if the scenario remains for a V-shaped recovery. As change in monetary policy might not be powerful enough, the policy mix needs to be strengthened and fiscal policy should be used as monetary policy is already extremely accommodative around the world. Policymakers should unleash a coordinated fiscal stimulus if the world economy fails to recover from the impact of the virus after two quarters.

As the COVID-19 epidemic was not yet fully reflected in the survey, German business confidence unexpectedly strengthened in February,mainly reflecting an improvement in the manufacturing purchasing managers&#39; index. According to an analyst, as Germany is an export nation, it would be particularly badly hit by the coronavirus if it becomes a pandemic.

**Asian Markets**

Asian markets suffered less than their European and North American friends as the Japanese Nikkei 225 index declined 9.6% for the week, while the Chinese Shanghai Composite index and the CSI 300 index fell by 4.7% and 5% respectively.

The yen and the 10-year Japanese government bond strengthened for the week as there was an increase in demand for safe-haven assets. The yen gained compared to the US dollar as the dollar faced some pressure from increasing expectations of a FED rate cut. The Japanese government bond dropped below -0.1% for the first time since the end of November, but was less volatile than other high-grade sovereign debt, such as the US Treasuries.

The reason for the Japanese bond yields dropping less than in the US or the eurozone is that the market does not think that there is a high probability that the BoJ will cut rates unless the yen continues to strengthen versus the US dollar. Instead of rate cuts, the BoJ&#39;s most likely action to address an economic slowdown caused by the coronavirus would be to increase its asset purchases. Furthermore, the Japanese government could respond with fiscal measures , such as tax relief for areas hurt by a drop in tourism along with an extension of spending incentives that were put in place before the October 1 increase in the VAT.

In China, there are encouraging signs that the outbreak may be coming under control, even if the ability of the virus to spread rapidly overseas suggests otherwise. The number of new cases continue to fall, as more that 20 provinces reported no new cases for the sixth consecutive day on February 27th. We are seeing a switch of emphasis in China away from lockdown and quarantine to getting China quickly back to work to reduce the damage to the economy. At the company level, major electronics manufacturer Foxconn said it aims to raise production from 50% currently to 80% by mid-March. This will be welcome news for Apple, the first major U.S. technology company to warn about first-quarter earnings on account of the coronavirus, since Foxconn is a major part of the Apple supply chain.

Official surveys on business resumption conducted in mid-February suggest that over 50% of enterprises with ¥20 million or more in sales had reopened. China&#39;s state-owned Assets Supervision and Administration Commission, which oversees large state-owned enterprises, reported a resumption rate of 80%. The China Association of Automobile Manufacturers said 75% of plants were operating by mid-February. Based on these and other surveys, the consensus view of a sharp dip in Chinese first-quarter gross domestic product  growth followed by a second-quarter rebound appears to be on track.

China has been employing some of the country&#39;s advances in high tech in the fight against the coronavirus. Alibaba developed an artificial intelligence algorithm that can analyze CAT scans for signs of COVID-19 in 20 seconds, much faster than any doctor. Over 100 cities in China now have an Alipay app that can send a QR code to individuals at risk, advising them to self-quarantine. With schools closed, over 60,000 teachers have given lessons online to 50 million pupils using Dingtalk. In the capital, Beijing, Baidu is using its autonomous vehicles to deliver food and essential supplies to residential units under strict quarantine.

A large number of fiscal stimulus measures were announced across Asia. On Friday, the South Korean government introduced a major package of support measures, although the central bank earlier in the week surprised investors by deciding against a rate cut. Also Friday, China added to its considerable earlier policy support with a temporary but very large ¥650 billion reduction in social security tax. This is aimed at helping smaller and mid-size companies that China&#39;s big banks are often reluctant to lend to.

On Wednesday, Hong Kong delivered a HK$120 billion boost, implying a record fiscal deficit of almost 5% of GDP. HK$10.9 billion goes to the Hospital Authority and HK$16.9 billion will provide financial relief to hard-hit sectors, such as Hong Kong&#39;s 70,000 retailers and 28,000 food license holders. There is also a HK$10,000 cash payment to all adult permanent residents, plus salary and property tax reductions and low-cost loans to businesses. Malaysia also implemented a RM20 billion fiscal stimulus equal to around 1.3% of GDP, though not all of this was &quot;new money,&quot;&#39; specifically to mitigate the impact of COVID-19 on businesses and households.

Weekly Market Commentary (February 24 – February 28)

**Weekly Market Commentary (February 17 – February 21)**

**Global Market Highlights**

- **Virus concerns pull back stocks from record high**

- **Apple sees decline due to the virus outbreak**

- **Eurozone economic data better than expected**

- **Japan&#39;s GDP contracts more than expected**

- **PBOC cuts prime lending rate**

**US Markets**

Equity markets ended the week lower as concerns about the impact of the COVID-19 virus outbreak on the global economy. The benchmark S&amp;P 500 index and the tech-heavy Nasdaq Composite Index reached new highs on Wednesday before declining for the rest of the week. The technology sector was among the worst performing sectors within the benchmark index, as worries about disrupted supply chains in Asia escalated. Communication services shares were also weak after a sharp earnings-related drop in ViacomCBS. Materials shares outperformed, as gold reached above $1600.

Evidence showed that the COVID-19 outbreak is having a ripple effect throughout the global economy, even though the large majority of the cases are in mainland China. Stocks fell on Tuesday, after Apple revealed that it would miss sales forecasts while the company was unsure of the extent of supply and demand shortfalls due to the new coronavirus. Auto parts company Aptiv also warned that the virus outbreak would weigh on its revenue and operating income more than expected. Many analysts feel like this was just the beginning of earnings downgrades.

On Wednesday, stocks regained some momentum, following reports of a sharp drop in new virus infections in China, with additional stimulus measures by the Chinese state. On Thursday, an alarming rise in infections at a Beijing hospital helped send equities down. On Friday, bad news continued as there was a jump in infections in South Korea and an outbreak in several Chinese prisons seemed to further damp sentiment.

Friday also showed some evidence that the US economy is slowing as a result of the COVID-19 virus impact. The IHS Markit&#39;s flash composite PMI for February fell sharply into contraction territory, indicating the first decline in US private sector activity since 2013. Regional manufacturing gauges surprised on the upside, while January building permits reached another 13-year high.

US equity markets ended the week lower as the S&amp;P 500 index dropped 1.25%, the Dow Jones Industrial Average declined 1.38%. The technology-heavy Nasdaq Composite index sold-off 1.59%.

**European Markets**

European markets were little changed this week, but more to the downside as a fast-than-expected bounce in business activity helped ease concern around the impact of the COVID-19 coronavirus on regional economic growth. The Stoxx Europe 600 index was flat, while the German Dax 30 index slipped 0.59%. The French CAC-40 dropped by 0.23% and the FTSE 100 rose 0.2%.

The eurozone IHS Markit Composite PMI climbed to 51.6 points in February from 51.3 in January, mostly due to an increase in the services component. Demand remained strong, despite evidence that the COVID-19 virus disruptions. Manufacturing PMI was below the 50-point mark, but continued to climb reaching 49.1 points, which was ahead of estimates. In the UK, the composite PMI held at 53.3, the highest level since September 2018. While services eased, manufacturing unexpectedly picked up to 51.9, a 10-month high, from 50.0 in January, despite shortages of components from China due to the coronavirus outbreak.

Consumer prices rose in the UK for the first time in six months, reaching an annual rate of 1.8% versus 1.3% in December. The increase was largely due to higher gasoline prices and airfares. The central bank said that it expects inflation to stay below its target through 2020 and reach a low of about 1.2% in Q3.

**Asian Markets**

Asian markets were mixed and volatile as the japanese Nikkei 225 index shed 1.27%, leaving it in negative territory YTD. The yen fell sharply against the US dollar, even though its history of being a safe haven currency in times of market stress and uncertainty. In China, equities rallied to a one-month high encouraged by a rate cut and promises of central bank support. The Shanghai Composite index rose 1.8%, while the CSI 30 0 index gained 2.3%. Many of China&#39;s shares rose by 10%, reaching their daily limit.

One month after the lockdown began, Chinese authorities in some regions and cities continue to move aggressively to contain the spread of the coronavirus. Parts of Beijing remain under lockdown following a cluster of 36 cases at one major hospital and one confirmed case at another. These widespread travel and quarantine steps—often decided at the local government level of the city or county—are negative for the economy and indicative of the conflict between the twin goals of beating the virus and getting China back to work.  Despite few signs of life in the passenger travel data after the Chinese Lunar New Year, there were signs of progress in restarting factories and commerce in parts of China not subject to strict quarantine controls.

Credit data in China beat expectations during January. New bank lending and total social financing  posted record monthly highs. Net government bond issues were a standout at over three times higher than in January 2019, confirming that lending policy was easing before the coronavirus struck.

As widely expected, China&#39;s central bank followed its early February cut in interbank rates with further cuts to key rates. On Monday, the medium-term lending rate was cut to the lowest level since 2017, while the PBoC also injected RMB ¥100 billion of liquidity into the money markets through seven-day reverse repurchase agreements. This was followed on Thursday by a 10-basis-point reduction in the important loan prime rate, a key lending rate for banks. Further cuts of 10 basis points are expected in the coming months. While providing support against the coronavirus disruption is a short-term priority, most market analysts do not look for major monetary easing.

The PBoC released its quarterly Monetary Policy Report , in which it said that it was important to provide support to firms hit by COVID-19, but the impact on the Chinese economy in terms of magnitude and duration was expected to be limited. Consumer price index inflation jumped 1.0% in January to 5.5%, the highest rate since 2011, but the MPR indicated the central thought the situation manageable. The Lunar New Year, higher pork prices due to African swine fever, and the impact of supply shortages due to the coronavirus were all to blame. China&#39;s core inflation, in contrast, was unchanged at 1.5% year over year. Even a temporary rise in CPI inflation is unwelcome, however, with the economy under pressure. It reduces real household income at a time when the trend growth in nominal income has slowed to around 6.0%.

Weekly Market Commentary (February 17 – February 21)

**Weekly Market Commentary (February 10 – February 14)**

**Global Market Highlights**

- **Coronavirus containment push stocks higher**

- **Powell unsure how the coronavirus will impact the economy**

- **BoE sees low rates for the foreseeable future**

- **Eurozone growth slows and the Uk stagnates**

- **Technical recession could be closer in Japan due to the coronavirus**



**US Markets**

US equities recorded a second week of solid gains as investors are optimistic about the containment of the coronavirus or as its called officially; the COVID-19. The Nasdaq Composite index reached new highs as technology stocks continued their strong performance. The smaller real estate sector outperformed within the benchmark S&amp;P 500 index as cellular tower operators generated strong gains.

For the majority of the week, shares gained as the stabilization of COVID-19 infections helped markets, until Thursday when cases jumped and caused a smaller pullback. Jerome Powell also testified in front of Congress on Tuesday and Wednesday and stated that they are closely monitoring the spread of the virus and he also stated that it is too early to see the impact  the virus could have on the economy, after which consensus started to grow that the Federal Reserve might cut rates in the coming months to stabilize the situation if the virus spreads further.

The focus on the virus may have taken the spotlight off some other important and potentially negative developments on the U.S.-China trade front. On Monday, the Department of Justice indicted four members of the Chinese military for their alleged role in stealing data from credit reporting firm Equifax in 2017. On Thursday, the DOJ announced a racketeering investigation into Chinese telecom giant Huawei Technologies for allegedly engaging in stealing intellectual property from U.S. firms.

The week&#39;s economic data were mixed as retail sales for January rose 0.3% matching analyst forecasts. The preliminary University of Michigan Consumer Sentiment Index for February rose to 100.9 points which outperformed expectations of dipping to 99.5 points. The index hit the highest level since March 2018. The Fed&#39;s industrial production declined in January by 0.3% versus estimates of 0.2% decline. Boeing&#39;s shutdown of its 737 MAX airliner production and the impact of COVID-19 on supply chains are leading many economists to push back their expectations for a recovery in the U.S. manufacturing sector.

Markets had a great week as coronavirus concerns faded. The benchmark indices rallied as the S&amp;P 500 index jumped 1.58%, the Dow Jones Industrial Index gained 1.02% and the Nasdaq Composite index advanced 2.21% for the week.

**European Markets**

European markets also rallied as coronavirus concerns waned. The European Stoxx Europe 600 index advanced 1.43%, the German Dax 30 index gained 1.69% and the UK&#39;s FTSE 100 index was close to unchanged.

Chancellor of the Exchequer Sajid Javid unexpectedly resigned after Prime Minister Boris Johnson ordered him to replace his advisers with those from No. 10 Downing Street. The resignation, just three weeks before the budget is to be presented, jolted financial markets, but the UK pound rose and gilts slipped on speculation that his deputy Rishi Sunak, a former Goldman Sachs banker, would unveil a big spending boost.

Mark Carney, BoE Governor, said that the UK&#39;s bank rate, which stands at 0.75%, is going to stay relatively low for the near future and that adjustments to rates will be very modest or certainly upward adjustments to interest rates they would expect to be relatively modest.  Higher government spending and more business investment are needed to raise the low rate of UK economic growth. The current low interest rate environment made it a good time to borrow to invest.

During Q4, eurozone economic growth slowed as expected due to contractions in France and Italy. The economy of the bloc expanded by 0.1% on the quarter, from 0.3% in the previous quarter, and rose 0.9% for the year. France&#39;s GDP shrank 0.1% and Italy&#39;s contracted 0.3% in Q4. The German and UK economies stagnated.

**Asian Markets**

Asian markets were mixed as the Japanese Nikkei 225 declined 0.6%, while the Chinese Shanghai Composite index gained 1.4% and the CSI 300 advanced 2.4%.

The first estimate of Japan&#39;s GDP growth for the final quarter of 2019 is scheduled for release on Monday, February 17. Most economists believe that the Japanese economy contracted about 4% in the period, largely due to the October 1 consumption tax hike, the slowdown in global growth, and weather factors, including typhoons. The outlook for current-quarter GDP growth is also looking less robust than earlier projections. The COVID-19 outbreak has dented consumer sentiment, travel, and tourism and hurt manufacturers because of supply chain disruptions. While most forecasters expect the long-term impact from the outbreak to be modest—the Bank of Japan has forecast positive GDP growth in each of the coming three fiscal years—back-to-back quarterly contractions meet the technical definition of recession.

Despite Shinzo Abe&#39;s urge for a 3% annual wage increase to boost consumer consumption and increase inflation, large corporations have raised compensation by only 2% on average over the past six years.

In China, even though the number of cases of the coronavirus jumped on Thursday, investors were optimistic after President Xi Jinping promised an all-out war to defeat the virus. China announced an additional 15,000 cases of COVID-19 due to a diagnostic reclassification, which brought Wuhan and Hubei back in line with other provinces. As a result of a backlog, the number of cases jumped from over 40,000 to over 60,000, triggering a risk-off response in Asian and global equities on Thursday. Surprisingly, the negative sentiment quickly reversed. Investors believed the diagnostic change was not an attempt to massage the numbers but was due to Hubei&#39;s shortage of test kits and an urgent need to prevent scarce hospital beds being taken by patients who later proved false positives. The WHO also calmed the nerves of investors as it stated that new cases outside of Hubei were falling.

Weekly Market Commentary (February 10 – February 14)

**Weekly Market Commentary (February 03 – February 07)**

**Global Market Highlights**

- **Stocks hit new records as virus fears moderate**

- **Chinese stimulus drives markets higher**

- **Eurozone output slumps**

- **Labor data surprised on the upside**

**US Markets**

US equities had an incredible week as the major indices recorded solid gains as encouraging economic data and hopes that the global economy will prove resilient against the coronavirus outbreak pushed sentiment higher. The S&amp;P 500 recorded its best weekly gain since June, while the Nasdaq Composite index reached a new record. Within the S&amp;P 500 index, technology stocks outperformed, helped by a gain in Microsoft shares. Other notable stocks that jumped were Tesla, which has increased by 75% YTD, and Twitter, which jumped after beating revenue and user growth forecasts. The utilities sector lagged as Treasury bond yields rebounded.

Investors were particularly keeping an eye on developments in China. On Monday, news that the Chinese central bank added some extra stimulus to offset the impact of the virus outbreak helped US markets to start the week strong. Signs showing progress in containing the virus also boosted investor confidence as did news on progress on a vaccine to tackle the spread of the virus. On Friday, stocks fell as the number of infections in China rose and an outbreak on a cruise ship anchored in japan may have halted the rally.  Investor sentiment was also boosted by the news that China is cutting tariffs on some US imports, effective February 14th, as part of the phase one trade deal.

Labor data also supported sentiment. On Wednesday, private sector jobs jumped by 291,000 in January, which is the biggest monthly gain in nearly five years and nearly double that of forecasts. The Labor Department official employment reports confirmed January&#39;s strength on the job market, with private and public sector payrolls rising by a combined total of 225,000 jobs. Manufacturing jobs are still declining, but encouraging signals emerged in other manufacturing data. On Monday, the ISM Manufacturing Activity Index moved back to expansion territory for the first time since July. The ISM non-manufacturing activity index showed the service sector expanding in January at the fastest pace in six months.

The major indices jumped higher as the fears about the coronavirus balanced and as economic data showed optimism. The S&amp;P 500 index jumped 3.17%, the Dow Jones Industrial Average increased by 3%, and the Nasdaq Composite Index was up by 4.04% for the week.

**European Markets**

European equities rebounded and reached record highs this week after strong earnings results and an advance in global markets. The European Stoxx Europe 600 index ended the week 3.22% higher, the German Dax 30 index advanced 4.02%, and the UK&#39;s FTSE 100 index gained 2.32%.

Newly elected ECB president, Christine Lagarde, stated that eurozone economic growth remained modest and that an &quot;ultra-easy&quot; monetary policy is required going forward. She also noted that moderate growth was delaying the pass-through from wage increases to prices and inflation developments remained subdued. She said that while domestic growth remained resilient, citing private consumption and low unemployment, global factors weighed on regional growth. She said the outbreak of the coronavirus in China was now the main risk to global growth, as trade war risks had receded. She defended ECB policies, saying they supported the real economy via better financing conditions, although care was needed to ensure financial stability.

Industrial production data was not so rosy in Europe, as it slipped in Germany and France, as factories struggled during a broad European slowdown and continuous strikes in France. The monthly decline of 3.5% in Germany and 2.8% in France were much greater than analysts expected. The annual German decline reached 6.8%, which is the worst recorded since 2009, and 3% in France. Furthermore, German manufacturing orders fell 2.1% in December, mostly due to a decrease in foreign orders.

The January UK services PMI was revised up to 53.9 points from 52.9 points which places it in expansion. The composite index rose to 53.3 points in January from 49.3 points in December showing recovery.

**Asian Markets**

 Asian markets were mostly up, excluding Chinese equity markets. The Japanese Nikkei 225 index jumped 2.7%, while the Chinese Shanghai Composite index dropped 3.4% for the week, reducing its 7.7% drop on Monday. The CSI 300 index fell 2.6% for the week.

Bank of Japan Deputy Governor Masazumi Wakatabe confirmed in a speech to business leaders in the Ehime prefecture that the central bank will not hesitate to employ additional easing measures if there is a loss of momentum toward achieving price stability. Wakatabe noted a &quot;decoupling&quot; between the performance of the manufacturing and non-manufacturing segments due to the slowdown in the global economy, which was largely the result of trade friction between the U.S. and China. He believes that the progress on the U.S.-China trade front and the UK&#39;s exit from the European Union reduces uncertainty and should lead to a resumption of global growth. He already views global manufacturing and business sentiment as improving, especially in the information technology sector, where semiconductor shipments have picked up. Wakatabe believes demand related to data centers and the 5G network are positioned to increase and is driving increased activity in the sector.

As most analysts expect a Q4 economic growth contraction due to the impact of natural disasters and the increase of the consumption tax, the central bank expects a 0.8% increase in GDP for 2019, 0.9% increase in 2020, and a 1.1% increase in 2021.  Even though equities rose in Japan during the week, Japanese leaders reflected on the situation by saying that they are cautious and attentive to the longer-term impact that the coronavirus can have on Japan&#39;s economy.

Equity markets reopened on February 3rd after an extended Lunar New Year holiday. Shares fell heavily Monday, as the Shanghai Composite index tanked 7.7%. Declining new reported cases of the Wuhan coronavirus for two consecutive days fueled optimism, but as of yet it is still too early to tell if the situation is stabilizing. The number of recoveries from the coronavirus has been increasing which could keep the mortality rate at 2% to 3%. News emerged that some type of antiviral drugs were proving helpful against the virus, even though the WHO stressed that there is no cure that is yet available, as an effective vaccine takes time to develop and test.

As authorities were expecting a huge market drop on Monday after an extended closure, Chinese authorities announced a package of 30 financial measures intended to support the economy and to alleviate some of the financial pressures arising on the account of the coronavirus. China&#39;s central bank, the People&#39;s Bank of China, promised to use its monetary policy toolkit to keep financial markets functioning normally and, on Monday, injected RMB ¥1.2 trillion of liquidity into the banking sector.

Most of the 30 measures are relatively modest steps. They are mostly aimed at offsetting some of the short-term financial stress by ensuring ample liquidity in money and credit markets, as well as providing interest rate subsidies and loan forbearance for companies and mortgage holders in temporary financial difficulty. In a move also partly designed to support the domestic economy, China announced on Thursday that it would lower import tariffs by 50% on USD $75 billion of U.S. imports. Some local governments have also announced their own financial support measures.

Optimistic economic news also lifted sentiment in China, as the Markit PMI for manufacturing came in better than expected, but it largely excludes the effects of the coronavirus.

Weekly Market Commentary (February 03 – February 07)

**Weekly Market Commentary (January 27 – January 31)**

**Global Market Highlights**

- **Coronavirus concerns pressure stocks**

- **Earnings season continues strong**

- **Eurozone economic growth is slower in Q4**

- **BoE leaves policy unchanged**



**US Markets**

The major US equity indices lost steam for the week as the concerns about the spread of the coronavirus got worse and global economic growth seems to be threatened, which put investors in a risk-off mode. Out of all the indices, the Nasdaq Composite Index held up the best, while the mid-and smaller-cap benchmarks dropped the most.

Stocks lost the most on Monday and Friday, when markets focused most on the spreading of the virus. By Friday, close to 10,000 cases were reported and the WHO declared the outbreak a global health emergency, as well as the US State Department had issued a warning for US citizens to avoid travelling to China. The hardest hit were the airline, cruise line, and casino stocks which are most affected by the decreased demand for travel.

The earnings season continued  and some of the largest companies reported earnings. Apple and Microsoft reported better than expected earnings, which helped offset some of the losses. Amazon also beat earnings expectations and recorded solid growth for its Prime membership program.

The risk-off environment supported a rally within the high quality fixed income market, as treasuries rallied and the yield of the 10-year Treasury note fell to its lowest level since September, which means that the price of the treasury jumped.

As expected, the Fed kept its short-term benchmark lending rate unchanged within the range of 1.50% to 1.75%. The bank&#39;s post meeting statement was virtually unchanged compared to the one issued in December.

The week was filled with economic news as personal income rose 0.2% in December, which was below the 0.3% expected by analysts. Inflation also rose by 0.2% which was above expectations. The January final University of Michigan Consumer Sentiment Index was revised to 99.8 points, which exceeded expectations of 99.1 points.  The index posted the highest level since May of 2019. The Chicago PMI fell further into contraction territory as it slipped to 42.9 points in January from December&#39;s 48.9 points, where it was expected to remain. Durable goods orders fell in December, but the consumer confidence rebounded in January.

Major indices traded lower for the week after the spread of the coronavirus brought more uncertainty to the markets. The S&amp;P 500 index plummeted 2.12%, while the Dow Jones Industrial Average dropped 2.55% and the Nasdaq Composite Index slipped 1.76%.

**European Markets**

European markets fell as the spread of the coronavirus threatens global growth. The European Stoxx Europe 600 index fell 2.28%, the German export-heavy Dax 30 index was down by 3.47%, and the FTSE 100 index declined by 3.29%.

During Q4, the eurozone economy grew at a slower-than expected rate. Gross domestic product, or GDP, expanded 0.1% for the quarter and 1% for the year, which was slightly below estimates. According to analysts, France and Italy were the main reasons for slower-than-expected growth, as the French economy contracted, rather than expanded due to the pub;ic sector strikes in 2019. The French economy is expected to rebound in the first half of 2020 as the strikes abated, which could also boost eurozone growth as well. In addition, consumer prices fell 1% in January, while rising only 1.4% for the year, below the close to 2% ECB target.

Unemployment in the region also dropped to 7.4% in December, its lowest level in almost 12 years. Economists were expecting a 7.5% unemployment rate and the total number of unemployed in the eurozone region dropped to 12.25 million. In a further positive signal for the eurozone economy, the European Commission&#39;s economic sentiment indicator rose in December to a five-month high, reflecting improved sentiment in the industrial and construction sectors. The consumer and services sectors were flat.

We might see a German recovery soon as the nation&#39;s economy ministry raised its forecast for 2020 to a 1.1% growth up 0.1% from previous estimates quoting improved trade outlook, strong domestic demand, and a higher number of working days this year. The ministry also stated that the economy has reached a turning point after two years of downbeat data.



The BoE kept its monetary policy unchanged and decided that a rate change was unnecessary given an improvement in business sentiment and stabilization of global growth.

**Asian Markets**

Asian markets followed the global trend of decline because of the rapid spread of the coronavirus. The Japanese Nikkei 225 index fell 2.6% while the Chinese markets were shut during the week after local authorities extended the Lunar New Year holiday in an effort to contain the spread of the Wuhan coronavirus.

Prime Minister Shinzo Abe&#39;s government has nominated Seiji Adachi, an economist known for favoring easy money policy and Abenomics, to join the Bank of Japan&#39;s policy-setting committee. If approved by the legislature, Adachi, an economist at Marusan Securities, will replace Yutaka Harada, whose five-year term expires in late March. Both Harada and Adachi are regarded as having dovish leanings. The story suggests that Abe wants to maintain the current program of aggressive monetary policy initiatives to bolster the economy and boost inflation to the 2% target.

On Thursday, the WHO declared the coronavirus a public health emergency of international concern. The WHO did not recommend any travel or trade restrictions, even though the Chinese have imposed extensive travel barriers. Analysts expect that the strong efforts of the authorities to isolate the entire province of Hubei is likely to disrupt economic activity and impact first-quarter growth figures.

Market weakness was not limited to China and Japan, as other emerging markets in Asia also felt the weakness. Thailand&#39;s SET index fell below key support levels and the latest weekly fund flows data to January 29 showed redemptions of $900 million from Asia ex-Japan equity funds, equal to 0.2% of assets under management.

Weekly Market Commentary (January 27 – January 31)

**Weekly Market Commentary (January 20 – January 24)**

**Global Market Highlights**

- **UK wants out of the single market and customs union**

- **European PMIs show good start to the year**

- **Japanese exports continue to diminish**

- **Coronavirus is spreading globally but should not have a major effect in the long run**



**US Markets**

Equities in the US finished the week lower as the earnings season continued and as investors worry about the outbreak of the coronavirus in China. The large-cap benchmarks and the tech-heavy Nasdaq Composite Index outperformed and reached new highs before dropping sharply on Friday as news that the virus is spreading faster than the Chinese government can handle. The utility sector outperformed as longer-term bond yields dropped, which attracts investors to high-dividend paying utility stocks. Energy shares lagged as oil prices declined further. Several tourism stocks were also impacted after the outbreak of the virus, such as Wynn Resorts and Las Vegas Sands which are major players in the Chinese tourism markets.

The trading week was dominated by the outbreak of the coronavirus in China on Tuesday, which affected tourism, airline, and gaming stocks the most. As news emerged that there was a confirmed case of the virus in Seattle, investors turned worried. Even though President Trump signed the initial trade deal with China, trade worries are still dominating the headlines, as Trump told reporters that he is ready to implement tariffs on European car imports.

Economic news seemed to relieve stress as the preliminary Markit US Services PMI index increased more than expected, rising to 53.2 points from the previous month&#39;s 52.8 points. The US manufacturing PMI index, on the other hand, dipped to 51.7 points from December&#39;s 52.4 points. On Thursday, weekly jobless claims rose a bit, but less than analysts expected. On Friday, European manufacturing data seemed to help stocks, before reports of a second US case of coronavirus appeared to stop the rally.

By the end of the week, the major indexes turned red, as the S&amp;P 500 index dropped 1.03%, the Dow Jones Industrial Average lost 1.22%. The Nasdaq Composite index decreased by 0.79%.

**European Markets**

European equities were little changed over the course of the week as they were recovering from earlier weakness after German economic data was positive and the WHO was short of declaring the coronavirus in China a global health emergency. The Stoxx Europe 600 index ended the week 0.08% higher, while the German Dax 30 index rose 2.1%. The UK&#39;s FTSE 100 index lost 0.55%.

UK Chancellor of the Exchequer, Sajid Javid said in an interview with the Financial Times that the UK would not seek regulatory alignment with European Union rules and intends to be out of the single market and customs union by the end of the year. He said the government would not support big manufacturers that favor alignment with EU rules. The Chancellor&#39;s comments represent a shift in the UK&#39;s negotiating stance. The change in stance caused dismay in the UK auto industry and in Brussels, where officials said that a divergence from EU rules would be economically damaging. Javid then sought to reassure businesses that there would be no wholesale dumping of EU regulations. He also said that the government would always protect British business interests and maintain high standards.

As there is no end to the trade battles even after the ratification of the initial trade deal between the US and China, President Donald Trump stated that they are ready to impose very high tariffs on European cars if the two sides cannot reach a trade agreement soon. The US Treasury Secretary also said that the administration expects a trade deal with the UK soon this year.

The major European economies show strength as the French and German economies posted a positive start to the year, with their combined output growth at a five-month high in January. In Germany, output rose for the second consecutive month as new orders increased for the first time since June. Stronger expansion in services activity and a slower decline in manufacturing contributed to the positive performance. In France, output and new orders rose for the 10th month. Business activity in the UK also expanded in January for the first time in five months, rising above 50 points, back at expansion. Manufacturing output was still below the 50 point mark, but showed positive signals as it is stabilizing compared to 2019.

During the week, Russia&#39;s new prime minister, Mikhail Mishustin, unveiled his new cabinet. Based on Mishustin&#39;s choices for various ministries, there are two main policy takeaways:

1. First, from a fiscal standpoint, Russia, which has, in recent years, focused primarily on maintaining financial and macroeconomic stability, including trade and budget surpluses, amid sharply lower oil prices and punitive U.S. sanctions, is shifting its objectives toward a balance of stability and growth.
2. Second, with the finance, foreign, and energy ministers returning to their previous posts under former prime minister Dmitry Medvedev, the government is signaling that it wants stability and continuity in these three key policy areas.

**Asian Markets**

Asian markets were also declining as the Nikkei 225 index fell 0.9% and closed at 23,827.18 points. In China, the Shanghai Composite Index suffered its biggest one-day fall in over eight months this week, declining 3.8% by the end of the week. The CSI 300 index dropped 4.3%.

Japanese exports continued to suffer as it fell 6.3% in December, which is more than expected, which marks 13 months of contractions since 2016. November&#39;s export data were revised lower as the Japanese economy continued to suffer from the global slowdown caused by the U.S.-China trade war. Although the &quot;phase one&quot; trade deal has been signed, most economy watchers believe the decline in exports will persist for a few more months. Thursday&#39;s release showed that Japan&#39;s exports in 2019 fell 5.6% to ¥76.9 trillion ($700 billion), while imports fell 5.0% to ¥78.6 trillion, leaving a small deficit.

The Bank of Japan left its interest rate and asset purchase targets unchanged at the central bank meeting on Tuesday. Even though economic growth in 4Q19 is expected to show contraction, caused by natural disasters and the negative impact on consumption from the sales tax hike, most analysts and economists believe that overseas demand has bottomed. These economists also raised their growth projections for fiscal year 2020 to 0.9% from October&#39;s 0.7% forecast. Analysts believe that there will be no monetary policy adjustments from any of the major central banks in the near term.

The current coronavirus is best compared to the SARS virus outbreak in 2003 as there are similarities, but also some key differences. Today&#39;s Chinese economy is more consumer-oriented and, arguably, more vulnerable. Since China&#39;s economic growth slowed significantly before the Wuhan coronavirus outbreak, there is growing market speculation about a possible short-term stimulus. The biggest economic casualties are likely to be retail sales (online sales could benefit), restaurants, and airlines and travel, as consumers take steps to lower the chances of infection by staying home more. Notwithstanding prompt action by Chinese authorities—including the lockdown of Wuhan and neighboring cities over the CNY holiday, halting public transport, and checking private cars—the disease has spread quickly, with cases reported in 23 provinces, Hong Kong, Macau, and six other countries. The big holiday migration in China typically gets under way well before the official start of the CNY. The number of reported cases was 800 as of January 24, with 25 deaths, compared with only 77 cases on January 21.

The macroeconomic impact of the coronavirus outbreak could be relatively minor, based on the SARS example, even if in the short run there could be some minor setbacks within the Chinese economy.

Weekly Market Commentary (January 20 – January 24)

**Weekly Market Commentary (January 13 – January 17)**

**Global Market Highlights**

- **Equities continue their march higher**

- **China and the US sign the first phase trade deal**

- **UK inflation slows to three-year low**

- **Chinese monthly economic data surprises to the upside**

**US Markets**

US equities continued their rally as most of the major indices reached new highs and investors welcomed the signing of the phase one trade deal between the US and China. Within the S&amp;P 500 index, the utilities sector led gains, while energy shares lagged. The signage of the phase on trade deal was the most important event this week.

After the signing of the partial US-China trade deal  on Wednesday, stocks changed only modestly as some very important information regarding the details of the agreement were released. Probably, the most important pledge by China within the trade deal was to buy an additional $200 billion of US goods by the end of 2021, but many doubt that China can achieve this target and many are curious how the US government will enforce this pledge. In return, the US agreed to cut tariffs on some Chinese goods from 15% to 7.5%, but it left in place 25% tariffs on roughly $250 billion in Chinese imports.

The week also kicked off the unofficial start of the Q4 earnings season as Citigroup, JPMorgan Chase, and Wells Fargo reported mixed earnings on Tuesday. Morgan Stanley, on the other hand, rose sharply and lifted overall sentiment after the company topped earnings estimates and forecast strong growth for the next year. Expectations for overall earnings for the S&amp;P 500 index are flat or slightly lower for the quarter. This week 45 companies have reported earnings within the S&amp;P 500 index and roughly 62% have beaten revenue forecasts and approximately 63% of the companies topped earnings estimates.

Economic data for the week was mixed as new housing starts for December jumped 16.9% compared to the previous month, which is the highest level since the end of 2006. The January preliminary University of Michigan Consumer Sentiment Index dipped to 99.1 points below the 99.3 level estimated by analysts. Industrial production also dipped 0.3% in December, which was more than the 0.2% drop expected.

**European Markets**

European equities continued to rise, as trade tensions eased, and as investors welcomed strong Chinese economic data. The European Stoxx Europe 600 index ended the week 1.33% higher, and the UK&#39;s FTSE 100 index gained 1.3%. The German export-heavy Dax 30 index added 0.3%.

Poor UK economic data coupled with dovish speeches and comments by the members of the Monetary Policy Committee of the BoE, added to speculation that an interest rate cut is in the cards at the next (January 30) policy meeting. The probability of a 0.25 percent cut in the benchmark bank rte, from 0.75% to 0.50%, rose to 80% and according to swap contracts, lower rates are fully priced in for the next three months.

Also in the UK, CPI rose 1.3% in December from a year earlier, which is the slowest since 2016. The core inflation rate slowed to 1.4%. Inflation has remained below the BoE&#39;s 2% target rate since August, while UK GDP grew by 0.1% in the three months to November, due to weakening services and falling productions.

Looking at preliminary estimates, German GDP expanded 0.6% in 2019 versus 1.5% in 2018.This was the slowest growth rate since 2013 and below the average of 1.3% of the past 10 years. On the bright side, the economy has been expanding in the past 10 years. Growth in 2019 was supported by consumption expenditures and gross fixed capital expenditures in construction. Services and construction recorded mainly high growth rates, but manufacturing slumped primarily due to an auto industry  slowdown. Exports also grew at a slower pace than in previous years, rising only 0.9%.

**Asian Markets**

Asian markets were mixed for the week, even though it was a holiday-shortened week in Japan, the Nikkei 225 index gained 0.8%. In China, the Shanghai Composite index lost 0.8% for the week while the CSI 300 index was down 1.2% as stocks did not rebound after the signing of the phase one US-China trade deal. The trade deal was largely as expected and it is expected to reduce the bilateral US deficit with China.

The Bank of Japan downgraded its economic assessment for three regions - Northern Hokuriku, Central Tokaim and Western Chugoku - primarily due to weakness in exports. In spite of the downgrades, monetary policy makers remain confident that domestic demand will largely offset downturn. Furthermore, the central bank stated that all of the nine regions within the country were either expanding or recovering. This overall positive assessment does not infer any changes in monetary policy at the next central bank meeting on January 20-21.

As the US and China signed the trade deal, many market participants looked at this  deal as driven primarily by US election politics and as not being a final solution for all trade problems. China has agreed to import much more from the US and also to maintain a relatively stable currency. China&#39;s claim that other countries will not suffer as it redirects purchases back to the U.S. also seems unlikely to many.

China&#39;s Q4 GDP came in as expected as it posted 6% growth on an annual basis and 1.5% on a quarterly basis which points to a stabilizing economy. The National Bureau of Statistics said that the economy expanded by 6.1% for the year as a whole and was generally stable as China continues to shift toward a consumer-led model.

Weekly Market Commentary (January 13 – January 17)

**Weekly Market Commentary (January 06 – January10)**

**Global Market Highlights**

- **As Middle East tensions diminish, stocks hit record highs**

- **December jobs report brought markets lower**

- **Eurozone business activity accelerates as inflation picks up**

- **BoE says interest rate cut is possible**

- **Protests continue in France**

- **Japanese household confidence falls to a five-year low**

- **Chinese 4.5% inflation comes in below estimates**



**US Markets**

American equity indices pushed higher as tensions in the Middle East lessened and the S&amp;P 500, Dow Jones Industrial Average, and the technology-heavy Nasdaq Composite index all closed in record territories. Technology shares outperformed as Apple continued its climb higher, following a report that Iphone sales in China are better than expected. Energy shares lagged as the diminishing tensions in the Middle East sent oil prices lower from their highs last week.

The week has been volatile as Monday started off in a wait-and-see mode after stocks were down on Friday following the assassination of the Iranian general, Major General Qasem Soleimani. On Tuesday, stock futures slumped in the evening as Iran retaliated by sending ballistic missiles to two Iraqi bases, which housed American troops. However, after no casualties were reported and reports that Iran is ready to de-escalate tensions emerged, confidence returned to the markets. For the rest of the week, stocks edged higher as investors focused on growth and de-escalation.

The week offered some economic data as well. Nonfarm payrolls disappointed as it rose by 145,000 jobs in December, while the estimates called for 160,000 new jobs for the last month of 2019. Private sector payrolls also disappointed reaching 139,000 new jobs created, unable to reach the forecasted 153,000 new jobs. The unemployment rate remained at November&#39;s 3.5%, which matched estimates.

Even after a volatile and geopolitically eventful week, the major benchmark indices were able to climb higher. The S&amp;P 500 gained 0.94%, the DJIA rose 0.66%, and the Nasdaq Composite index edged 1.75% higher closing at 9178.86 points.

**European Markets**

European shares continued their rise as well, mimicking US markets as Middle East tensions de-escalated and as trade relationships are hoping to get better between China and the US. The European Stoxx Europe 600 index gained 0.39%, while the German export-heavy Dax 30 index jumped 2.38%. The UK&#39;s FTSE 100 index dropped 0.76%.

Business activity is starting to look better in the eurozone as it grew more than expected in December. Even though manufacturing continued to slip, gains within the services sector offset this decline. The composite PMI reached 50.9 points from 50.6 points in November. The services index reached 52.8 points from 51.9, as manufacturing shrank for the 11th consecutive month. The upturn in the services sector boosted confidence in the economic outlook to its highest level since May.

Business activity was not the only positive signal that the economy might be recovering and that a recession is no way near. The eurozone consumer price index rose 1.3% in December  on an annual basis, which shows strong consumer spending during the Christmas season. As it remains below the ECB&#39;s inflation objective of close to 2%, the increase in CPI decreases the pressure on the central bank to continue cutting interest rates.

Even though inflation measure in the eurozone shows a positive outlook for the region&#39;s economy, German exports fell 2.3%,which is more than expected, in November and exceeded a decline in imports. Because of the decline, the trade surplus narrowed to 18.2 billion euros from 21.3 billion euros in October. German industrial production recovered in November after two months of declines. The output rose 1.1%, while orders fell 1.3% in November compared to October.

The protests in France continued as trade unions held their fourth massive demonstration against the pension reforms and are planning to hold more during the weekend. Rail workers at public rail company SNCF have been on strike since December 5—the longest protest at the company since 1938—which has cost hundreds of millions of euros in lost revenues. According to reports, the stoppages have been the worst since the student protests of May 1968.

The Spanish Parliament finally approved the country&#39;s first coalition government since the return to democracy in the late 1970s, ending a political stalemate since elections last year. Prime Minister Pedro Sanchez will rule with his ally, the far-left Podemos party led by Pablo Iglesias, but they will have to rely on alliances with smaller parties to get their legislation approved because the two parties hold only 155 of the 350 seats in parliament. The new government&#39;s policies are likely to include the partial reversal of Conservative labor reforms, higher taxes for big companies, more action on cutting emissions, and the reduction of child poverty.

**Asian Markets**

Stocks were mostly higher in Asia as well. The Japanese Nikkei 225 added 0.82%, while the Chinese Shanghai Composite Index edged 0.28% higher and the CSI 300 gained 0.44%.

Thanks to Prime Minister Abe&#39;s stimulus package, the BoJ is expected to revise its GDP growth forecast higher for the upcoming fiscal year. The current GDP forecast is 0.7% for 2020, but it is expected to be revised to 1.0% at the next central bank meeting due to the positive impact from the government&#39;s $122 billion spending initiative.

As the Lunar New Year holiday begins on january 24th, equities seemed to benefit from the seasonal strength in spending. During this period, consumer spending increases which accelerates the economy.

At 4.5% year over year, consumer price inflation in December came in below the consensus expectation of 4.7%. Food inflation slowed, reflecting a 5.6% monthly drop in pork prices, which is the first decline in seven months. As pork is the most important item in the Chinese food basket, its shortage is a serious issue for the government, which has released supplies of frozen pork into the market. The December price decline was partly due to an unsustainable increase in the number of hogs slaughtered in November. With pork prices rising ahead of the Lunar New Year, the crisis may not be over and constitutes a mild headwind for consumer spending in the first quarter.

A sustained higher oil price on account of U.S.-Iran tensions would be an inflation headwind for China that could see the CPI inflation rate surpass the 5.0% level in the next month or so. China&#39;s central bank said Monday that it would &quot;win the battle&quot; against growing financial risks in the economy, signaling officials&#39; increased attention to bad loan-related problems among domestic lenders. In the near term, however, economic activity on the mainland is set to slow during the Lunar New Year holiday.

China announced that the Vice Premier is expected to lead a delegation to Washington between January 13-15 to sign the Phase One partial trade deal with the US. This was the first official confirmation of a signing date that was previously tweeted by President Trump. The precise details of the deal are still unknown. Traders regard this ratification as a temporary de-escalation of global trade tensions.

Weekly Market Commentary (January 06 – January10)

**Weekly Market Commentary (December 30 – January 03)**

**Global Market Highlights**

- **As Middle East tensions rose, stocks ended the week mixed**

- **Safe haven assets rise as tensions escalate**

- **European manufacturing declines further**

- **As Brexit uncertainty rises, manufacturing worsens in the UK**

- **German unemployment rises more than expected**

- **After PBOC cuts RRR, equities rise in China**



**US Markets**

During the holiday-shortened week, equities ended mixed as global markets pulled back on Friday following a US attack on Iranian military leaders on Thursday. The tech-heavy Nasdaq Composite index performed the best. Within the S&amp;P 500, technology shares outperformed, helped by a jump in Apple shares to record highs. The smaller material sector lagged, as did the healthcare sector.

In the first half of the week, equities in the US were strong, helped by positive news on trade. On Tuesday, President Donald Trump tweeted that he would be signing the initial trade agreement negotiated in December at the White House on January 15 and that he would later head to China to begin work on a Phase Two deal. News on Thursday of new monetary stimulus by China also boosted sentiment.

On Thursday, the US led an airstrike on Iranian military leaders and killed Qassim Suleimani, one of Iran&#39;s most respected military leaders, which drove focus away from trade temporarily.  The long-term effects of the attack are still unknown, but as an immediate reaction we could see gold and oil prices jump. One of the highlights on Friday, came from Tesla, which reported an increase in sales of its EV vehicles in Q4 that topped analyst estimates.

Worries over escalating tensions in the Middle East may have been intensified by downbeat economic data released on Friday. The ISM Manufacturing Index dropped to 47.2 points from the 48.1 points achieved in November, which was also below the 49-point Bloomberg forecast. The gauge indicated the fifth consecutive month of contraction in the sector, and the details of the report were also disappointing, with declines in indexes of both employment and new orders. On the bright side, construction spending rose 0.6% in November.

The major indices were mixed this week as the benchmark S&amp;P 500 index dropped 0.16%, the Dow Jones Industrial Average fell 0.04%, while the Nasdaq Composite Index gained 0.16%. The DJI ended 2019 with a 22.2% return, as the S&amp;P 500 ended up 27.76%. The Nasdaq Composite Index outperformed all, ending 33.86% higher for the year.

**European Markets**

European equities fell for the week as tensions escalated in the Middle East during the holiday-shortened week. The Stoxx Europe 600 index fell 0.34%, the German export-heavy Dax 30 index declined by 0.88%. The UK&#39;s FTSE 100 index shed 0.29%. The Stoxx 600 index ended 2019 up 24.5%, which is its best performance since 2009.

It was a shorter week with only a few economic news. Based on the purchasing manager&#39;s survey, the drop in eurozone manufacturing deepened in December, most in Germany. The index showed 46.3 points, which is worse than the 46.9 points in November. The gauge has stayed below the 50-point mark for an 11th consecutive month.

The UK manufacturing sector also worsened in 2019, with the sharpest drop in output in more than 7 years as political uncertainty, Brexit, pressured orders. The IHS/Markit Manufacturing PMI fell to 47.5 points in December from 48.9 points in November.

**Asian Markets**

Asian stocks were mixed as in Japan markets were closed Tuesday through Friday, while in China the Shanghai Composite Index added 2.6%, while the CSI 300 index rose 3.1%. For the year, the Nikkei 225 advanced 18%.

For the first time, more than 20% (26 million) of Japan&#39;s population is at least 70 years old. Meanwhile, the Welfare Ministry estimates that the number of births in Japan will have declined below 900,000 in 2019, the lowest level since 1899, and that Japan&#39;s indigenous population is shrinking by approximately 500,000 annually—roughly one person per minute. Policies to cope with Japan&#39;s aging population and to rekindle economic growth were two of the key topics at the ruling Liberal Democratic Party debate. Some believe that if Prime Minister

Shinzo Abe wins the leadership, he will take steps to broaden employment opportunities for older workers and foreigners. The government is expected to ask employers to permit workers to stay on the job beyond the normal retirement age of 65. Workers age 65 and older totaled 12.4% of Japan&#39;s workforce, which is the largest percentage of retirement-eligible workers ever. Japan&#39;s unemployment rate dipped to 2.2% in November.

Prime Minister Abe and BoJ Governor Kuroda urged business owners to increase wages at least 3% to accelerate inflation and lift the economy. The Prime Minister  has again asked Japan&#39;s corporate leaders to boost wages during the annual Shunto wage negotiations which is a request he has issued for each of the past seven years. Last year, wages expanded 2.1%, well below the 3% level economists believe is necessary to boost inflation to the 2% target range. Kuroda reiterated the plea and stated that the business leaders had the power to create the positive cycle of wage and price growth.

In China, on Wednesday, the PBOC stated that it would cut the reserve requirement ratio for financial institutions by 0.5 percentage points, which would come into effect on January 6th. This move would release roughly $115 billion into the financial system. According to the bank, this is not a stimulus move, but rather a hedge against higher demand for cash ahead of the upcoming Lunar New Year holidays. On the economic front, the Caixin/Markit Manufacturing Purchasing Managers&#39; Index declined in December after five straight monthly increases, yet stayed in expansionary territory. However, China&#39;s official manufacturing PMI data held steady and marked a second month of expansion.

What also supported sentiment was the ongoing optimism about the pending US-China trade deal. Details of the agreement are still limited. Though the phase one deal seems to have removed a key risk for investors in the short term, U.S. and Chinese leaders still need to sign the official language before it becomes effective and before all of the risk is gone. According to traders, until the deal is officially signed, investors remain cautious.

Weekly Market Commentary (December 30 – January 03)

**Weekly Market Commentary (December 23 – December 27)**

**Global Market Highlights**

- **Nasdaq passes the 9000 mark**

- **Phase one deal done, but the details are sketchy**

- **European markets reach new highs**

- **Italy passes next year&#39;s budget**

- **Chinese stocks rise**



**US Markets**

US indices keep rising as continued trade optimism helped stocks move on to new highs in a shortened week of quiet trading. The tech-heavy Nasdaq Composite index outperformed and crossed the psychological mark of 9000 for the first time, as the smaller-cap benchmarks lagged. Consumer discretionary shares outperformed within the S&amp;P 500 index, boosted by a healthy gain in Amazon.com, which is almost a quarter of the sector&#39;s market weighting. On Thursday, Amazon recorded its best daily gain since the start of the year after reporting record holiday sales. Utilities were left behind.

Investor sentiment was boosted by trade optimism as investors were optimistic about the signing of the phase one trade deal between the US and China. On Tuesday, Donald Trump told reporters that he would meet with President Xi Jinping soon and that the deal  is done and it is only waiting for translation.  Although, the details of the agreement are still to be released. Traders also noted that the congressional approval of the USMCA trade agreement and the decreased threat of new car tariffs also boosted sentiment.

The economic calendar was light this week but it had a negative tone which diminished sentiment. Durable goods orders fell unexpectedly in November, while new home sales rose MoM in November, but just because October sales were revised lower. Weekly jobless claims dropped for two weeks in a row.

The Christmas week was good for the indices as the S&amp;P 500 rose 0.58%, the Dow Jones Industrial Average inched 0.67% higher and the Nasdaq Composite Index added 0.92%.

**European Markets**

European equity markets finished the week higher as the Stoxx Europe 600 index increased by 0.32%, while the German export-heavy Dax 30 index added 0.14% and the UK&#39;s FTSE 100 added 0.82%.

Europe related news was limited this week, but sentiment was boosted by the rally in the US and the progress made with the Phase One Deal between China and the US. The Stoxx 600 broke a 5-year-old record and holiday-week gains set a new mark.

The Italian parliament passed its 2020 budget, one week ahead of the year-end deadline. Italy&#39;s governing coalition canceled a sales tax hike amid concerns about weak household spending and kept the fiscal deficit target at 2.2% of gross domestic product for the third consecutive year. Although the budget fell short of European Union (EU) deficit reduction guidelines, the EU did not ask for any revisions when the draft budget was presented in October. Italian stocks finished the week modestly lower.

**Asian Markets**

Asian stocks were modestly higher as the Japanese Nikkei 225 index added 0.09% and the Chinese Shanghai Composite Index was unchanged while the CSI 300 index edged slightly higher. Optimism over improved trade relations came after the U.S. and China announced December 13 that they had reached a so-called phase one trade deal.

According to a survey, banks are starting to take on riskier assets while reducing their holdings of Japanese government bonds as the yields stay persistently low. Of the 29 regional banks, 20 reported reducing their Japanese government bond portfolios. The survey notes that some of the regional lenders are struggling to generate revenue and income due to shrinking rural populations and the trend of industry consolidation.

Separately, Japan expanded its lead over China as the largest foreign owner of U.S. Treasuries. Japanese holdings of Treasury notes, bills, and bonds increased to $1.17 trillion in October. China is still the second-largest holder, with $1.10 trillion.

Data pointed to surprisingly strong growth in China&#39;s industrial sector which  supported investor sentiment. Profits at industrial companies rose 5.4% in November on an annual basis, their fastest pace in eight months. November&#39;s gain came after industrial profits fell for three straight months, including a 9.9% drop in October. Despite the reversal, a statistics bureau official cautioned against a sustained recovery in the industrial sector and noted that current downward pressure on the economy is substantial.

Weekly Market Commentary (December 23 – December 27)

**Weekly Market Commentary (December 16 – December 20)**

**Global Market Highlights**

- **Equity indices reach new highs and are in record territory**

- **Trade deal boosts market sentiment, but the details are still unclear**

- **Positive economic signals push bond yields higher**

- **Brexit uncertainty deepens again**

- **Eurozone manufacturing PMI shrinks**

- **Chinese stocks post third weekly gain**

**US Markets**

The S&amp;P 500 benchmark index recorded a substantial weekly gain as investors were celebrating the announcement of a &quot;Phase One&quot; trade deal between the United States and China. Within the S&amp;P 500 index, communication services stocks outperformed, helped by the surge in Netflix shares as the company reported strong gains in international subscriptions. The smaller utilities and real estate sectors performed well, while industrial shares lagged, pressured by a decline in FedEx following a sharp drop in quarterly profits and another reduction in its full-year outlook. Financials are lagged behind the benchmark index.

As the &quot;Phase One&quot; deal was agreed upon few details and concrete development were released, but nonetheless investors were optimistic that a preliminary deal was reached. On Thursday, Chinese officials announced that the deal would be signed sometime in January. On Friday, good news continued as Donald Trump tweeted that China had started large-scale purchases of US agricultural products as part of a larger deal. Further details of the agreement are still unclear as the text and context has not been released to the public by Friday.

Positive economic signals also boosted sentiment as the Commerce Department reported that personal incomes jumped 0.5% in November, which was well above the expectations. Personal spending also increased by 0.4% in November, as housing starts rose more than expected , while permits for new construction surged to their highest  level in more than 12 years. On the negative side, weekly jobless claims fell less than expected. Manufacturing data was also mixed. Industrial production rebounded more than forecast in November, but factory activity fell to near contraction levels in the Mid-Atlantic.

Markets ended the week higher as the S&amp;P 500 index rose 1.65%, the Dow Jones Industrial average jumped 1.14% and the Nasdaq Composite index added 2.18%.

**European Markets**

European equities also rose as UK Prime Minister Boris Johnson won the general election and as the US and CHina agreed to an interim limited trade deal.  The European STOXX Europe 600 Index ended the week 1.55% higher, and the UK&#39;s FTSE 100 Index climbed 3.11%. Germany&#39;s exporter-heavy DAX index gained 0.27%.

As Boris Johnson revived fears of a No-deal Brexit, the pound gave up its gains compared to the euro and the US dollar. Johnson signaled that he would amend the Brexit bill to prevent any extension of the transition period for a new trading relationship with the European Union beyond the end of 2020, the current deadline. A failure of the negotiations would mean the economic relationship would default to World Trade Organization terms, with the likelihood of tariffs on imports and exports.

The Flash Eurozone PMI remained at 50.6 points for a third successive month in December, just a tad above the 50.0 level separating expansion and contraction. On the other hand, manufacturing recession deepened, surprising to the downside. The manufacturing PMI fell to 45.9 points from 46.9 points in November, reflecting an 11-month decline. The decline was expected as the strikes continue in France and the analysts expect the PMI to rise early next year as the protests and strikes come to an end.

Sweden exits its negative rates policy as the country&#39;s Riksbank raised its repo rate by 25 basis points to 0%, ending five years of negative yields. The bank indicated that it will maintain this level for years to come.  The Riksbank maintained its October warning that if negative rates were to continue for too long the behavior of economic agents may change and negative effects may arise.  The bank has been criticized for raising rates when the economy is weakening. It countered that the economy is slowing after several years of solid growth and a strong labor market, which means that the Swedish economy is going from a stronger-than-normal cycle to a more normal situation.

The Bank of England left its interest rates unchanged at 0.75%, but two of the nine policymakers were against the decision and voted for a rate cut for two months in a row.  The bank continued its QE program. The central bank expects the economy to rise marginally in 4Q19, which stays consistent with its November forecasts that predicted growth will pick up in the spring.

**Asian Markets**

Asian stocks were mixed for the week as the Japanese Nikkei 225 index dropped 0.9%, adding 19% for the year so far. The Chinese Shanghai Composite Index rose 1.23%, while the large-cap CSI 300 index added 1.2%.

The Bank of Japan kept the monetary policy target rates unchanged - short-term interest rates at -0.1% and the long-term yield at 0%. On Thursday, the Board members also voted to keep the central bank&#39;s asset purchase levels unchanged. The bank decided by a unanimous vote to purchase exchange-traded funds and Japan real estate investment trusts at a rate of about ¥6 trillion and ¥90 billion, respectively, depending on market conditions. The policymakers are adamant in their commitment to keeping short- and long-term rates at the existing levels for as long as necessary to achieve price stability, the 2% inflation target.

In China, the weekly gains came about after the US and China reached a &quot;Phase One&quot; trade deal that would lower US tariffs on Chinese goods and suspend planned duties. However, the leaders of the U.S. and China still need to sign the official language before it becomes effective, and terms of the deal could still unravel at this stage.

Weekly Market Commentary (December 16 – December 20)

**Weekly Market Commentary (December 09 – December 13)**

**Global Market Highlights**

- **Trade dominated sentiment**

- **&quot;Phase One&quot; trade deal reach as new tariffs are avoided**

- **Retail sector sales disappoint**

- **UK Conservatives win election with large majority**

- **Japanese GDP growth revised upwards**

- **Chinese equities on a roll**

- **Saudi Aramco rallies after IPO**

**US Markets**

The major US indices ended higher after another week of trade related news dominating the markets. The three large indices reached new highs as the &quot;Phase One&quot; trade agreement boosted semiconductor shares, assisting technology stocks higher and outperforming the S&amp;P 500 index. Energy shares were also strong as trade optimism pushed oil prices to three-month highs. The smaller real estate sector also outperformed the S&amp;P 500 index.

Equities were volatile during the week as contradictory signals on the state of the US-China trade negotiations and the imposition of new tariffs loomed larger. Then, stocks broke higher as news emerged that President Donald Trump had agreed to cancel the new tariffs on Chinese products as well as cut existing ones if the Chinese increase their US farm goods purchases.

Friday brought even more confusion to the markets as Chinese officials announced that a preliminary agreement has been reached to cut tariffs, meanwhile President Trump tweeted that the news about the China Deal was incorrect and was fake news. After this tweet, shares surrendered earlier gains as investors awaited clarification from the White House.

Stocks then rebounded again after Robert Lighthizer and Steven Mnuchin released a statement announcing that the US would lower the tariff rate on about $120 billion in Chinese goods from 15% to 7.5% while canceling upcoming tariffs on nearly $160 billion Chinese imports as part of an initial trade deal.

The week was light with economic data as retail sales for November rose 0.2% which was below the 0.5% forecast. The import price index, which measures the prices of imports to the US, increased by 0.2% in November, which matched projections. Business inventories were also up 0.2% in October which was in line with forecasts.

The S&amp;P 500 index gained 0.73% for the week as the Dow Jones Industrial Average gained 0.43%. The Nasdaq Composite index added 0.91%. All three major indices reached new highs.

**European Markets**

European stocks were higher as the US and China got closer to a partial trade deal and as fears of a hard Brexit almost disappeared after a crushing general election victory for Prime Minister Boris Johnson and his Conservative party. The pan-European STOXX Europe 600 Index ended the week 1.05% higher, Germany&#39;s exporter-heavy DAX index gained 0.73%, and the UK&#39;s FTSE 100 Index rose 2.11%.

The ruling Conservatives won a runaway general election victory, carving a swath through the opposition Labour Party&#39;s northern heartlands. The Tories won 364 of the 650 seats, achieving a majority of 79 seats, the party&#39;s largest since 1987. The pound sterling soared to more than $1.35, its highest level since May 2018. Labour leader Jeremy Corbyn announced that he would be stepping down after Labour lost the most seats since Michael Foot&#39;s defeat in 1983. Liberal Democrat leader Jo Swinson, who lost her seat, also resigned.

Brussels is said to be relieved over Johnson&#39;s win,but the UK trade negotiator was skeptical that an accord would be struck by the end of the year. According to analysts, the Parliament is expected to approve the timetable for the Withdrawal Agreement Bill however this may not occur as soon as expected. Markets could be volatile in 2020 as shifting perceptions of negotiations between the UK and the EU begin.

The newly elected President Christine Lagarde kept the ECB&#39;s  ultra-easy monetary policy stance and bond-buying program unchanged due to the subdued inflation outlook. Lagarde, who describes herself as an owl rather than a hawk or a dove, said risks remain tilted to the downside but had become somewhat less pronounced. Incoming data pointed to continued muted inflation pressures and weak growth dynamics, although there were some signs of stabilization in the growth slowdown. Headline inflation was likely to rise somewhat in the coming months, although indicators of inflation expectations stand at low levels. Lagarde repeated her call for all European decision-makers to introduce more growth-friendly policies.

The ECB also revised its growth forecast. GDP is expected to grow at 1.2% this year, 1.1% next year, and 1.4% in 2021 and 2022.

**Asian Markets**

Asian stocks rallied this week as the Japanese Nikkei 225 added 2.86%, while the Chinese Shanghai Composite Index rose 1.91% and the large-cap CSI 300 index grew 1.69%. The rally was caused by the progress of the US - China trade talks.

Japan&#39;s Cabinet Office reported that the GDP growth in Q3 was revised to 1.8% which is much stronger than the 0.2% estimate. The primary reason for the growth were robust capital expenditures, a smaller-than-expected decline in exports and a spike in domestic demand before the new consumption tax increase. Most economists believe that the nation&#39;s recently enacted fiscal stimulus efforts will boost economic growth over the long run, but GDP is expected to contract in Q4 of 2019 as fiscal stimulus is not expected to offset the weakness in other areas of the economy.

In China, most of the gains occurred on Friday, driven by reports that President Trump had approved an initial trade deal to resolve the U.S.-China battle. Despite the lack of an official confirmation by Beijing of any deal by Friday&#39;s market close on the mainland, traders appeared willing to bet on a positive outcome and sent both indexes to their highest closing levels since early November. China&#39;s yuan rose to its highest level against the U.S. dollar in four-and-a half months, as traders anticipated that the latest agreement would start a de-escalation in a trade war that has weighed on the global growth outlook.

Saudi stocks, as measured by the Tadawul All Share Index, returned about 1.3% in the five trading sessions since the close of business on Thursday. Shares advanced as the widely anticipated IPO of state-owned energy company Saudi Aramco appeared to be well received by investors. Saudi Aramco listed 1.5% of its total shares, and a surging share price on the first two days of trading briefly lifted the company&#39;s market valuation to $2.0 trillion, by far, the largest company in the world, as measured by market capitalization. The Aramco IPO is part of Crown Prince Mohammad bin Salman&#39;s &quot;Vision 2030&quot; plan to modernize the Saudi economy, privatize state assets, and reduce the kingdom&#39;s dependence on oil.

Weekly Market Commentary (December 09 – December 13)

**Weekly Market Commentary (December 02 – December 06)**

**Global Market Highlights**

- **US benchmarks mixed for the week**

- **More aggressive trade stance from the White House**

- **US labor market is strong, but manufacturing struggles**

- **Pound rises as Conservatives are ahead in the polls**

- **Political risks resurface in Germany and France**

- **Eurozone inflation rises more than expected**

- **Chinese stocks rise as trade optimism rises**



**US Markets**

The major US benchmarks ended mixed for the week after strong jobs report data helped regain most of the losses experienced in the first half of the week. Within the S&amp;P 500 benchmark index, consumer staples sector outperformed, supported by a rise in Procter &amp; Gamble  shares. Industrial stocks were left behind as shares of Boeing dropped as the plane manufacturer continues to lose sales to Airbus amid the continued uncertainties over the 737 Max aircraft. The transportation segment was also weak as UPS, FedEx and United Airlines all recorded losses.

The trading week began on a down note as the benchmark index suffered its worst two-day loss in almost two months on Monday and Tuesday. On Monday, Donald Trump decided to reinstate steel and aluminum tariffs on Brazil and Argentina. Even though the tariffs are not substantial in monetary volume, but it does show a more aggressive stance on trade from the White House.

Equities continued to slide on Tuesday after the President suggested that a trade deal with China might have to wait until the 2020 Presidential elections. Furthermore, Wilbur Ross reiterated that the administration is prepared to go through with raising tariffs on Chinese products on December 15th if there is no progress in negotiations. To complicate things even more, Robert Lighthizer, US trade representative, threatened to add tariffs up to 100% on French goods in response to the new digital services tax on US technology companies. Wednesday brought some relief to the markets as Donald Trump announced that trade talks are going well with China, which helped markets recover some of their previous day losses.

The week was filled with economic data as nonfarm payrolls jumped by 266,000 jobs in November compared to the forecast of 180,000 new jobs. Private sector payrolls also outperformed as 254,000 new jobs were added in November within the private sector compared to the 178,000 new jobs expected. Unemployment dipped to 3,5% from October&#39;s 3,6% rate. The December prelim University of Michigan Consumer Sentiment Index rose to 99,2 points which outperformed the 97 points expected. The payrolls data was the major market mover and because of the outperformance of the jobs market, equities were able to recover most of the losses from the first two days of the week.

The major US equity indices were mixed for the week as the S&amp;P 500 index gained 0.16%, while the Dow Jones Industrial Average slipped 0.13%. The Nasdaq Composite index dipped 0.10%.

**European Markets**

European stocks ended the week flat, recouping earlier losses sparked by fears that a US-China trade deal might be delayed until after the 2020 US elections. Equities gained on Friday after Donald Trump reassured markets that trade talks were moving in the right direction. Stronger-than-expected jobs data also pushed European equities higher. The European Stoxx Europe 600 index stayed almost flat losing 0.02%, while the export-heavy German DAX 30 index fell 0.5% and the UK&#39;s FTSE 100 index dropped 1.6%.

The british pound rose to a seven-month high compared to the US dollar and the euro as opinion polls showed the ruling Conservative Party was maintaining a comfortable lead ahead  of the December 12th general election.

Germany and France, the two largest eurozone powers, were struck by political instability. Germany&#39;s Social Democratic Party elected left-wing leaders who are critical of the party&#39;s coalition with the conservatives and who have a different fiscal policy agenda. Any prospective rise in German government bond issuance would likely lead to a sell-off. In France, the government&#39;s planned pension reforms triggered the largest public sector strike since 1995. Right now, President Emmanuel Macron faces an unenviable choice. If he chooses not to yield to protesters, prolonged disruption could weaken the French economy. But if he postpones the reforms, markets may punish the weaker commitment to fiscal sustainability.

Eurozone inflation picked up in November as it ends its monthly streak of declines.Consumer prices increased 1% on an annual basis, higher than the 0.9% growth expected by economists. In September, the European Central Bank said falling inflation was the main reason it cut interest rates and restarted its bond purchase program. November&#39;s data adds to signals that the region&#39;s economy may have begun to stabilize.

**Asian Markets**

Asian markets were higher as the Japanese Nikkei 225 advanced 0.26% and the Chinese Shanghai Composite Index rose 1.4%, while the CSI 300 index added 1.9%. These gains were attributed to the increased optimism surrounding the US - China trade negotiations.

Due to a fallout from the recent sales tax increase, declining exports, and natural disasters  in Japan, Shinzo Abe, Japan&#39;s prime minister, unveiled a  ¥13 trillion fiscal stimulus package to boost the economy. Although Japan&#39;s economy has continued to grow this year, most economists view the gains as tenuous due to the uncertainty surrounding the U.S-China trade talks, Brexit, and tensions in the Middle East, which have all contributed to a worldwide economic growth slowdown.

Abe said that he wanted a powerful policy package based on three pillars of ensuring disaster rebuilding and safety, providing intensive support to overcome downside economic risks, and sustaining economic vitality after the Tokyo Olympics. The total stimulus package, which is about ¥26 trillion, also including government loans, private-sector spending, and credit guarantees, is expected to boost gross domestic product by 1.4% through fiscal 2021.

Japanese stocks have been having a blast as foreigners are buying up stocks in Japanese companies for the past eight weeks. The thinking is that there will be progress in the U.S.-China trade dispute that would turn equity markets higher in addition to fiscal stimulus that will benefit the domestic economy. In the week ended November 29, stock exchange data showed net purchases, including cash equities and futures, totaled ¥364 billion.

On Friday, China started to waive retaliatory tariffs on US pork and soy imports by domestic companies. The Finance Ministry is working to waive tariffs resulting from the trade war after domestic companies bought a certain amount of US farm products. This could be a sign that the two nations are getting closer to a so-called &quot;Phase One&quot; deal which could be the precursor to a more extensive trade deal.  This week&#39;s economic data showed that factory activity picked up in November at its fastest pace since 2016.

Weekly Market Commentary (December 02 – December 06)

**Weekly Market Commentary (November 25 – November 29)**

**Global Market Highlights**

- **US markets move on to new highs**

- **China announces new IP protection which boosts trade sentiment**

- **UK pound higher as conservative party is the likely winner of majority in Parliament**

- **Consumer sentiment in Germany rises**

- **Factory output in Japan contracts**

- **Japan&#39;s GDP growth forecast was cut by IMF**

- **Equities in China fall after US legislation supports Hong Kong Protesters**



**US Markets**

Markets moved higher this week as growing optimism about the &quot;Phase One&quot; trade deal helped business sentiment. The three major indices reached new record highs as trading volumes were elevated early in the week. Within the S&amp;P 500 index, consumer discretionary shares outperformed, supported by a rise in shares of Amazon following signs of favorable online holiday shopping trends. The week was busy with several corporate M&amp;A news after Charles Schwab confirmed rumors of plans to acquire rival discount broker TD Ameritrade as well as French luxury goods maker LVMH announced a deal to buy Tiffany &amp; Co.

Stocks increased on Monday after news emerged that China had announced plans to develop new measures to protect against the theft of intellectual property, which is a key part of US trade negotiations. According to a report, the plans would involve both broadening the definition of IP theft and stiffening its penalties. Semiconductors were the largest beneficiaries as Texas Instruments, Nvidia and Micron Technology reported strong gains.

Thursday brought criticism from China, as President Trump decided to sign the human rights bill which supports the protesters in Hong Kong, which sent stocks lower.  The week was buoyed by encouraging economic data. New home sales fell slightly in October but on the bright side it topped analyst estimates.Furthermore, durable goods orders recovered unexpectedly in October and the annualized growth in Q3 GDP was revised upward from 1.9% to 2.1% as business investment declined less than previously estimated. On the pessimistic side, personal incomes were flat in October, which is the worst showing in a year.

US indices were higher for the week as the S&amp;P 500 edged 0.99% higher, while the Dow Jones Industrial Average grew 0.67% and the Nasdaq Composite index rallied 1.76%.

**European Markets**

European stock markets were higher driven by the rally on Wall Street. However, worries that U.S.-China trade tensions would escalate after President Trump&#39;s support for Hong Kong protests capped gains. The European Stoxx Europe 600 index rose 1.1%, while the German export-heavy Dax 30 index gained 0.7%. The UK&#39;s FTSE 100 index was up close to 0.5%.

The British pound had a good week as it grew 0.7% compared to the US dollar as another poll suggested that a Conservative Party win was the likely outcome of the upcoming December 12 general elections. Furthermore, Prime Minister Boris Johnson has promised that he will deliver a new Brexit deal to Parliament before Christmas.

German consumer sentiment rose unexpectedly in December. The improved sentiment among buyers is expected to give a boost to household spending and support the export-driven German economy, which has come under pressure from global trade tensions and Brexit uncertainty. Income expectations also improved in line with a strong labor market, rising wages, and moderate inflation. An unexpected drop in German unemployment added to positive sentiment that the country&#39;s manufacturing slowdown may be coming to an end. Joblessness fell by 16,000 in November, and the unemployment rate held at 5%, near a record low.

OECD reported that the slowdown in global trade has the largest impact on the EU as Brexit uncertainty and the slowing German industrial sector exacerbate the slowing caused by the US-China trade tensions. In 3Q19, EU exports contracted 1.8% and imports fell 0.4%. The EU figures compared with a 0.7% drop in exports across the Group of 20 major economies.

**Asian Markets**

Asian markets were mixed for the week as the Japanese Nikkei 225 index rose 0.78%, while the Chinese Shanghai Composite Index declined 0.5% and the CSI 300 index dropped 0.6%.

On Friday, news showed that Japanese factory output had contracted more than expected in October which pressured equities. The IMF cut Japan&#39;s fiscal 2019 GDP growth forecast to 0.8% from 0.9% due to the global economic slowdown. The IMF noted that Japan&#39;s economy has been resilient despite the fall-off in export demand and suggested that the government should not tighten its aggressive spending stance for a time. The IMF believes that Japan&#39;s economic growth is likely to continue slowing in fiscal 2020 and forecast 0.5% growth next year. The fund&#39;s recommendations for the Bank of Japan included more ambitious structural reforms. Prime Minister Shinzo Abe&#39;s economic policies have helped to lower deflation risk and reduced the fiscal deficit, but inflation has stubbornly remained under the central bank&#39;s 2% target. The IMF noted that Japan&#39;s aging and declining population will continue to crimp growth.

IMF managing director, Kristalina Georgieva, praised the smooth implementation of a higher consumption tax, which was raised to 10% from 8% in October, but she also stated that the IMF&#39;s views that the Japanese government will need significantly more revenues over time. According to the organization, Japan should increase the consumption tax to 15% by 2030 and to 20% by 2050, as well as reintroduce a wealth tax and raise capital gains tax over time to 30% from 20% to pay for rising social security costs for its aging population and to reduce the massive public debt.

Chinese stocks continued to fall for the third consecutive week as Donald Trump signed a bill supporting the Hong Kong protesters which brought criticism from Beijing. Officials on both sides signaled during the week that an interim deal is close at hand, though it isn&#39;t expected to address intellectual property, technology transfer, or other contentious issues.

Poor economic data also pressured Chinese stocks this week. Industrial profits in China fell in October for the third straight month by a worse-than-forecast 9.9% from a year ago, accelerating September&#39;s 5.3% decline, the country&#39;s statistics bureau revealed Wednesday. The contraction was the latest report suggesting that China&#39;s economy had yet to bottom out as a trade deal with the U.S. remains elusive and raised the likelihood that Beijing would soon roll out fresh easing measures to support the economy.

Weekly Market Commentary (November 25 – November 29)

**Weekly Market Commentary (November 18 – November 22)**

**Global Market Highlights**

- **Global equity markets lose steam as trade concerns rise**

- **China threatens strong countermeasures in response to Hong Kong Bill**

- **Eurozone PMIs show slower contraction in the manufacturing sector**

- **German economy avoids recession**

- **Shinzo Abe wants more fiscal stimulus**



**US Markets**

US equity markets broke their streak of six weekly gains as trade concerns pushed markets lower. Within the S&amp;P 500 benchmark index, energy stocks outperformed as they were helped by the rise in oil prices following a smaller than expected increase in US crude supplies. Healthcare stocks also outperformed as presidential candidate Elizabeth Warren moderated her plans for &quot;Medicare for All&quot; system. As Macy&#39;s, Home Depot, Kohl&#39;s and other retailers reported disappointing sales and forecasts, consumer discretionary shares lagged. Out of the retailers, Target was the notable standout after the company topped earnings and revenue estimates. The company also raised its full-year profit outlook.

Markets were almost unchanged in the first half of the week, but as Wednesday approached markets turned lower as developments followed in the US-China trade dispute. The first development was that both sides came up with new demands which can mean that the &quot;Phase One&quot; trade deal is unlikely to be ratified before the end of the year. Donald Trump also stated that the Chinese were not stepping up to the level that he wants them to which could also hinder the ratification.

As the protests in Hong Kong escalated during the week, China threatened with strong countermeasures if Donald Trump signed a bill supporting human rights in Hong Kong. On Tuesday, the US Senate passed the Hong Kong Human Rights and Democracy Act, which would impose sanctions on Chinese officials responsible for cracking down on protesters in the nation. The bill was almost unanimously passed in the House of representatives as well.

However, as of the end of the trading week, Trump has not signed the bill and some market participants are speculating that that the White House might seek to appease the Chinese by using executive power to delay or to weaken its enforcement. The President later stated that he stands with Hong Kong, but he also stands with President Xi.

The week was light with economic data and did not seem to move markets. The preliminary US manufacturing PMI index in November rose to 52.2 points from October&#39;s 51.3 point figure and outperformed the estimated 51.4 points. The preliminary US services PMI index accelerated as it rose to 51.6 points above the 51 point forecast. The final University of Michigan Consumer Sentiment Index  was adjusted higher to 96.8 points from the 95.7 point prelim figure.

Escalated concerns and uncertainty over the &quot;Phase One&quot; deal outweighed positive economic signals and drove long-term bond yields lower.  The S&amp;P 500 index dropped 0.33%, the Dow Jones Industrial Average was down 0.47%, and the Nasdaq Composite index dropped 0.25%.

**European Markets**

European equity markets were also under pressure as trade uncertainty escalated between the Us and China. The Stoxx Europe 600 index lost 0.3%, while the German export-heavy Dax 30 index slid 0.5%. Meanwhile, the UK&#39;s FTSE 100 index gained about 0.5%, which was thanks to the decline in the British pound compared to the US dollar.  UK stocks tend to gain when the pound falls because many companies that are part of the index are multinationals with overseas revenues.

Eurozone PMI measures showed that the manufacturing activity in the region contracted at a slower pace in November while services weakened. The region&#39;s manufacturing purchasing manager&#39;s index rose to a three-month high of 46.6 points in November, which still represents a contraction territory. Private sector activity dropped to 51.5 points, but it still remains in expansion territory.  As private sector activity contracted in the UK, the pound fell. Activity in the services sector - which accounts for 80% of the UK economy - fell to 48.6 points from 50 points in October. Germany avoided a recession as the economy grew 1%. The Bundesbank also stated that the economy will likely stagnate in Q4 and that there is little sign of a rebound anytime soon.

**Asian Markets**

Asian markets also lost steam as markets recorded a loss. In Japan the Nikkei 225 index shed 0.8% and is up 15% for the year.  In China, the Shanghai Composite Index dropped 0.2%, while the CSI 300 index declined 0.7%.

Sources reported that the Bank of Japan has gone over 40 days without making a significant ETF purchase of domestic stocks. The inactivity has led to speculation that the central bank has begun a &quot;stealth tapering&quot; of its stimulus program, which was first implemented almost a decade ago. In theory, the central bank should have purchased about ¥5 trillion (¥500 billion per month through October) so far this year, but BoJ ETF purchases total just ¥3.8 trillion for the year to date. Some investors doubt whether the program, which is seen as propping up equity markets, still serves its original purpose of helping ease monetary conditions. The BoJ now owns more than three-fourths of the domestic ETF market, raising concerns about the pace and the impact of unwinding the position valued near ¥28 trillion.

Also in japan, Prime Minister Shinzo Abe asked the coalition government for additional spending to offset the impact of the sales tax hike, to repair damage from recent natural disasters and to support the economy after the Tokyo Olympics next year. The proposed ¥10 trillion addition to the budget is the largest since 2012, following the devastating earthquake and tsunami. Several analysts voiced their concern about the additional spending given Japan&#39;s already huge government debt load and the ability to implement a large infrastructure program given the tight labor market. Parliamentary approval will be needed.

Chinese stocks continued to fall this week as well after a US bipartisan bill supporting protestors in Hong Kong was passed and ruined expectations for a partial trade deal that was expected to be ratified this month. On the economic front, China reduced two key lending rates as the government stepped up the pace of monetary easing to cushion the trade war&#39;s impact on the economy. On Monday, the People&#39;s Bank of China unexpectedly trimmed its seven-day repurchase rate for the first time in more than four years. Days later, the PBOC reduced its loan prime rate—used by many lenders to base their mortgage rates—for the third time since August, when it became the official lending benchmark. The cuts signaled the PBOC&#39;s determination to bolster lending and shore up an economy under growing strain from the ongoing U.S. trade battle.

Weekly Market Commentary (November 18 – November 22)

**Weekly Market Commentary (November 11 – November 15)**

**Global Market Highlights**

- **US indices reach new records**
- **Largest US dairy firm files for bankruptcy**
- **Germany avoids technical recession**
- **British economy grows at slowest pace in a decade**
- **Japanese GDP growth slows in Q3**
- **Chinese economic data disappoints**



**US Markets**

The major US equity benchmarks traded higher as investors continued to await concrete details on the progress of the US-China &quot;Phase One&quot; trade negotiations. Within the S&amp;P 500 index, healthcare shares outperformed the market as a late rally emerged in insurer shares following the White House&#39;s announcement of new rules requiring disclosures of rates negotiated with hospitals. Energy shares lagged, weighed down by a drop in the share price of Exxon Mobil.

The major driver of sentiment was the anticipation of a &quot;Phase One&quot; trade deal between the US and China. Having dismissed China&#39;s assertion the previous week that the two sides had agreed to a series of tariff reductions, President Donald Trump nevertheless continued to state that negotiations were making progress. Hopes had grown that the president would offer some further details in a speech to the New York Economic Club on Tuesday, but he merely stated that a trade deal was very close. Deepening unrest in Hong Kong in the second half of the week also weighed on markets and concerns increased that a possible clampdown by China would result in a further split between the US and China.

On Thursday, Jerome Powell appeared in front of the House&#39;s Budget Committee, where Powell gave further indications that the Federal Reserve is in a pause mode after cutting rates for the third time this year in October and would need to see a substantial change in economic conditions before making further adjustments. The Chairman also mentioned that he saw few signs that the recent downturn in manufacturing was spilling over into the much larger services sector.

On Friday, the Federal Reserve reported that in October industrial output dropped by 0.8%, which is its sixth monthly drop in 2019, although the now resolved strike at GM was largely to blame for the drop. A gauge of manufacturing activity in the New York region also disappointed, and capacity utilization in factories, mines, and utilities fell to its lowest level in two years. On the other hand, October retail sales reversed the previous month&#39;s drop, and the University of Michigan&#39;s preliminary gauge of consumer expectations in November rose more than anticipated.

Corporate earnings reports were still the focus this week and this week brought about some significant corporate events such as the bankruptcy of Dean Foods, the largest US dairy company, and confirmed that its in negotiations with the Dairy Farmers of America to sell most of its assets.

US indices were higher for the week as the S&amp;P 500 was up 0.89%, the Nasdaq Composite Index edged 0.77% higher and the Dow Jones industrial average advanced 1.17%.

**European Markets**

European equities were mostly higher because of hope for a US-China trade deal and continued strength in US stocks. The Stoxx Europe 600 index gained 0.2% and the export-heavy Dax 30 index increased by 0.08%, while the UK&#39;s FTSE 100 index dropped 1%.

New German data showed that the economy avoided a recession, growing 0.1% in Q3. Germany&#39;s manufacturing industry has been hurt by the US-China trade dispute, Brexit uncertainty and by the disruption in its auto industry. So far the manufacturing recession has not moved into the services sector which was one of the main fears. The EU statistics office reported that the eurozone economy grew 0.2% compared to the previous quarter and grew at 1.2% pace for the year.

Germany was not the only one that avoided a recession, because the UK also avoided one. The Uk&#39;s economy grew at its slowest annual rate in about a decade caused by the Brexit uncertainty. The economy grew 1% for the quarter. Moody&#39;s lowered its outlook for the UK to negative from stable, saying that political and social divisions have impeded the country&#39;s ability to make policy decisions. As the general election nears, the number of unemployed increased the most in more than four years in Q3. Even so, the unemployment rate remains at a record low of 3.8%.

**Asian Markets**

Asian markets were not as lucky as its european and American counterparts as the Japanese Nikkei 225 index fell 0.38%, while the Chinese Shanghai Composite index lost 2.5% and the CSI 300 index dropped 2.4%.

For Q3, the Japanese economy expanded at an annualized 0.2% pace. The growth of the economy slowed drastically from the 1.8% in Q2 and came in below the 0.8% median market forecast. The domestic demand data were solid and showed that the economy held up well in the period leading up to the consumption tax increase; however, a run down in inventories trimmed the quarterly GDP figure by 1.2%. Overall, the decline in exports outweighed the gains from domestic demand. Several economists said that they expected economic weakness in the fourth quarter even if inventory levels were replenished because higher taxes would likely hurt consumer spending.

The Japanese government is getting ready to trim its tax revenue estimate for fiscal 2019 by about 1 to 2 million jpy, from 62.5 trillion jpy. The reason is falling corporate earnings due to weakness in the global economy. Many firms are cutting their revenue and earnings forecasts, due to declining exports, which is resulting in lower tax revenues. The Finance Ministry reported that first-half tax revenue had declined about 10% from the year-ago period. According to government sources, the potential second-half revenue decline could be larger and would likely prompt the government to propose a supplementary budget and issue additional deficit-covering bonds.

The Chinese government reported disappointing data for industrial output, retail sales, and fixed-asset investment. Industrial output and retail sales both grew much less than forecast in October. The week&#39;s data raised the prospect that Beijing would step up easing measures to bolster an economy under growing strain from U.S. trade tariffs. Last month, President Trump said that the U.S. and China had reached an interim trade pact that both sides could sign by November and would lay the groundwork for a broader agreement. However, optimism about a pending deal has since fizzled as officials from both sides tamped down expectations about the timing of any deal, while trade talks hit an obstacle this week over a dispute regarding China&#39;s purchase of U.S. agricultural products. Even if the U.S. and China manage to reach an interim deal, the risk of a re-escalation in trade tensions will persist into the runup to the 2020 elections.

Weekly Market Commentary (November 11 – November 15)

**Weekly Market Commentary (November 04 – November 08)**

**Global Market Highlights**

- **US markets reach new highs**

- **US - China Phase one trade deal seems like a go**

- **Despite mixed economic news, recession fears seem to be diminishing**

- **IMF cuts Eurozone forecast, but German exports rise**



**US Markets**

US indices continued to reach new highs as the Dow Jones Industrial Average joined the S&amp;P 500 and the Nasdaq Composite indices in record territory.  Optimism about the &quot;Phase One&quot; ** ** trade deal between the US and China pushed markets higher as well as longer-term bond yields started to recover and move higher. Third quarter earnings surprise also supported markets. The dispersion of the returns among stocks in the S&amp;P 500 was at historically high levels, suggesting that individual company fundamentals, rather than cash flows into and out of stocks in aggregate, were playing the primary role in the market&#39;s moves. Within the S&amp;P 500 index, financials outperformed as rising long-term interest rates favored banks&#39; lending margins. On the other hand, increasing bond yields dragged real estate and utilities down and as long-term bond yields rose, impressive dividend yields became less appealing to investors.

The week started off on a positive note as the markets were optimistic about Donald Trump&#39;s statement that the US and China would soon sign an initial trade deal called a &quot;Phase One&quot; deal. News about more waivers for US companies to do business with Chinese telecommunications company Huawei Technologies also supported sentiment especially within the telecommunications sector. On Wednesday, stocks turned slightly red  as reports emerged about a disagreement over where to sign the deal which could delay the ratification until at least December.

Thursday and Friday seemed interesting as on Thursday, Chinese officials stated that the two sides have agreed to roll back tariffs proportionally as part of this initial deal, which was later rebuffed by the White House and on Friday by Donald Trump which sent equities lower on Friday.

The week offered mixed and conflicting economic data as the preliminary University of Michigan Consumer Sentiment Index for November rose to 95.7 points from October&#39;s 95.5 points. Initial jobless claims declined by 8,000 to 211,000 in the seven days ended Nov. 2 which was lower than the expected 215,000 claims which means that jobless claims fell to a month-low. On Tuesday, positive data followed as the Institute of Supply Management reported that the US service sector activity rose sharply in October, while the IHS Markit service sector index declined and reached its lowest level since early 2016. All in all, the general decline in recession fears drove markets higher.

Equities were not the only one that rose due to the decline in recession fears, as long-term bond yields also rose to new heights. The yield on the 10-year Treasury has surged to 1.945% which is its highest level since the end of July. The most obvious reason for the yield growth was that traders are hopeful about the trade deal.

As US indices reach new highs, on a YTD basis the Dow Jones Industrial Average returned 18.66%, the S&amp;P 500 index is up 23.39%, while the Nasdaq Composite index is up 27.73% so far.

**European Markets**

European equity indices followed the trend on Wall Street and edged higher, caused by the rally on Wall Street and the optimism about a US-China trade deal. Solid European corporate earnings also eased systematic risk on the markets. The Stoxx Europe 600 index gained 1.4%, while the export-heavy German Dax 30 index was up by 2% and the UK&#39;s FTSE 100 index by 0.8%.

On average, earnings season has been great in Europe as well as according to data of the 80% of the Stoxx 600 companies that have already reported performance, about 50% of the companies have outperformed consensus estimates on both the topline and bottom line, which is the highest level in the last six quarters. Healthcare and materials companies outperformed the most on eps so far, while utilities and consumer goods have trailed the average.

As recession fears still loom in the global markets, the IMF announced that the eurozone is likely to grow less than expected in 2019 and that the recession in the manufacturing sector could lead to a recession in the services sector. According to the forecast, the region would grow by 1.2% down from the 1.3% estimated in April. The region grew by 1.96% in 2018 which can be attributed to slow growth in Germany, the region&#39;s largest economy, and stagnation in Italy, which is the region&#39;s third largest economy. To tackle the slowing economies within the eurozone, the IMF called on governments to respond with fiscal measures because monetary policy alone will not be able to stabilize the regional economy.

More news from Germany suggested that the country&#39;s exports rose 1.5% in September, which is more than analysts expected. Factory orders moved 1.3% higher compared to the previous month, which is a relief since it has been falling for the past two months.

**Asian Markets**

Asian markets were also trading higher as the Japanese Nikkei 225 index rose 2.4%, while the Chinese Shanghai Composite index edged 0.2% higher and the large-cap CSI 300 was up by 0.5%.

Markets in Japan were closed on Monday due to a holiday, but it was still able to register larger gains in response to the rally on Wall Street. The Nikkei 225 index is up 16.9% on an annual basis. Equities in Japan advanced amid signs of improvement between the US and China and investors are hoping that the Phase One deal will be ratified soon.

The yen declined, which is favorable for Japanese export businesses, as bullish investor sentiment reduced demand for safe-haven assets and currencies, and longer-term Japanese government bond yields climbed, which is supportive for banks that need longer-term interest rates to be higher than short-term rates so that they can make more profitable loans.

While there is growing optimism that a U.S.-China trade deal and this year&#39;s interest rate cuts from various global central banks could have a favorable impact on global growth next year, economic data in Japan remain discouraging. The Japanese services sector,  measured by the Jibun Bank Japan Services Purchasing Managers&#39; Index, contracted in October for the first time in about three years. One of the main factors behind the contraction was the October 1st increase in the consumption tax, from 8% to 10%. On Thursday, the Reuters Tankan survey of Japanese manufacturers in November showed that sentiment in the sector was at its lowest level in more than six years.

Equities in China advanced as trade optimism drove markets higher. Both of the major indices fell on Friday, as Beijing and Washington sent mixed signals about rolling back tariffs as part of the initial trade deal. However, plans to remove tariffs in stages boosted sentiment.

Buying ahead of a widely expected announcement from MSCI to boost the weighting of mainland Chinese stocks in its influential Emerging Markets Index also supported Chinese stocks. On Thursday, MSCI said that A shares, yuan-denominated shares of companies that trade on China&#39;s domestic exchanges, would rise to a weight of 4.1% in its widely used Emerging Markets Index from a current 2.6% weight. The increase marked the third step of a previously announced plan by MSCI to increase the weighting of Chinese A shares in its various emerging markets indexes and was among several changes announced by the index compiler as part of its November semiannual review.

Weekly Market Commentary (November 04 – November 08)

**Market themes and portfolio summary for October 2019**

October was a great month for risky assets as President Trump and President Xi announced a so-called phase-one deal, giving relief to investors that trade tensions will not escalate further in the near term. In addition, many companies reported better-than-expected quarterly figures, thus also alleviating recessionary fears. In terms of our funds, the Growth Stock portfolio outperformed the S&amp;P500, but the Quality Stock portfolio lagged the benchmark. It is worth mentioning though that the dispersion was high in both portfolios. Namely, TAL Education Group, Facebook and NetEase drove returns for growth stocks, but GrubHub&#39;s drastic fall weighed on performance. Similarly, Intel, Las Vegas Sands and Synnex strongly contributed to the Quality Stock Portfolio, but Infosys and Novartis pared the gains.

Looking at the drivers of the equity markets, we believe that (1) the risk-free rate is going to stay at current low levels for an extended period of time. (2) The equity risk premium still stands at elevated levels, similar where it was at the end of 2018, after the huge market sell-off. We argue that recessionary fears are overblown, and as such, we believe the equity risk premium should decline. As we saw recently, many companies surprised to the upside in their latest earnings releases, and thus (3) Earnings Per Share (EPS) may also drive returns, but at least it will not be a drag. With this backdrop, we still believe that our long equity positioning will pay-off.

**US**

The Federal Open Market Committee lowers its benchmark funds rate by 25 basis points again to a range of 1.5% to 1.75%, as expected. Chair Jerome Powell indicated that the Fed may be on pause from here as he removed  &quot;act as appropriate to sustain the expansion&quot; from his statement. Instead, &quot;the Committee will continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate.&quot;

Additional rate cuts become even less likely after the jobs report on 1st November as nonfarm payrolls rose by 128 thousand in October 2019, following an upwardly revised 180 thousand increase in September and easily beating market expectations of 89 thousand.

According to Factset, 76% of S&amp;P 500 companies have reported a positive EPS surprise and 61% of S&amp;P 500 companies have reported a positive revenue surprise. The blended earnings decline for the S&amp;P 500 is -2.7%. If -2.7% is the actual decline for the quarter, it will mark the first time the index has reported three straight quarters of year-over-year earnings declines since Q4 2015 through Q2 2016. (As at 1 November, with 71% of the companies in the S&amp;P 500 reporting actual results.)

**EUROPE**

The Eurozone economy grew 0.2 percent on quarter in the three months to September 2019, the same pace as in the previous period and slightly above market expectations of 0.1 percent, a flash estimate showed.

The ECB left its monetary policy unchanged as expected. The meeting marked Mario Draghi&#39;s last appearance as the President of the ECB after leading the institution for eight years. In his last speech, he said that the &quot;slowdown in growth mainly reflects the ongoing weakness of international trade in an environment of persistent global uncertainties, which continue to weigh on the euro area manufacturing sector and are dampening investment growth.&quot;

**China**

Most importantly, President Trump&#39;s and President Xi&#39;s stance finally seem to converge as they announced a so-called phase one deal. It is likely to be signed around mid-November, although a finite date is still in question, and will include agricultural purchases from China, while the US suspended the tariffs scheduled for mid October. According to the press, President Xi is also pressing for canceling the December tariffs, which has not been confirmed by the US so far.

The Caixin China General Manufacturing PMI rose unexpectedly to 51.7 in October 2019 from 51.4 in September, beating market expectations of 51.0. The latest reading pointed to the strongest pace of expansion in the manufacturing sector since February 2017, as output grew the most since December 2016 and total new orders increased at the fastest rate in over six years boosted by a rebound in exports.


**\*\*\*Disclaimers\*\*\***
 
**Investing involves risks, including possible loss of principal. Past performance is no guarantee of future results.**
 
_The strategies and companies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security. This material is not intended to be relied upon as a forecast, research or investment advice. There is no guarantee that any strategies discussed will be effective._
 
_This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice._
 
_This material contains general information only and does not take into account an individual&#39;s financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision._
 
_©2019 MFC Equity. All rights reserved._

October 2019

**Weekly Market Commentary (October 28 – November 01)**

**Global Market Highlights**

- **US markets reached new highs**

- **The Federal Reserve cuts interest rates**

- **Solid economic data pushes markets higher**

- **European markets reach new highs as Brexit extension is granted**

- **Solid Chinese earnings and manufacturing data help equities rise**

**US Markets**

It was another great week for US equities as the S&amp;P 500 gained 1.41%, while the Nasdaq Composite index is up by 1.93%. The Dow Jones industrial average ticked 1.44% higher.  Within the S&amp;P 500 index , the health care shares outperformed the benchmark as earnings beats by Merck and Pfizer pushed the sector higher. Energy shares fell as oil prices declined because of oversupply concerns.

The most awaited event of the week was the rate cut by the Federal Reserve as it cut rates by 25 basis points, citing the strong labor market, moderate economic growth as well as sustained growth in consumer spending. The rate cut on Wednesday was widely expected by the market, but policymakers indicated that further cuts were on hold until inflation expectations remained subdued.

Earnings season continued as stock-specific factors drove the markets higher. About 158 of the S&amp;P 500 companies reported results over the week. The majority of the companies that reported earnings beat analysts expectations, but according to analysis overall earnings for the group have declined modestly on a year-over-year basis. The drop in profits in the volatile energy sector is expected to be largely responsible for the decline in overall earnings.

Despite the focus on the earnings season, macroeconomic data appeared to retain some sway over sentiment.  Third quarter GDP in the US came in at 1.9%, which was above the 1.6% consensus estimate . Consumer spending also grew by an annual average of 2.9% which is above the historic average of 2.4%. Stock futures jumped after the Labor Department reported that employers added 128,000 jobs in October, which is well above expectations. However, business investment fell at an annualized pace of 3%.

In healthcare, Align Technology and Centene jumped 16% and 11% on upbeat figures. Pfizer and Merck also gained on better-than-expected results. LVMH made a 100% cash bid for US jeweller Tiffany. At $120 a share, the premium is close to 30% on the last price. The stock soared 34% as investors are betting on a counter bid or a sweetened offer from the French luxury company.

**European Markets**

Many of the major European markets rose during the week, pushed higher by the EU&#39;s decision to grant the UK a three-month Brexit extension, encouraging Chinese manufacturing data, and because of strong asset inflows into the region. The European Stoxx 600 index rose 0.35%, the German export-heavy Dax 30 index was up by 0.52%, and the UK&#39;s FTSE 100 dropped by 0.30%.

Election campaigning kicked off in the UK after Prime Minister Boris Johnson won backing for a December 12 general election. Johnson&#39;s call for an election came after the European Union announced that it would allow the UK a three-month extension to leave the EU. The UK will now be able to leave the bloc if it and the EU ratify the withdrawal deal that Johnson agreed to in October.

The European Central Bank kept rates unchanged as well as restarted its asset purchases program for 20 billion euros per month. It was the last week for President Mario Draghi as he passed on his title to Christine Lagarde, as she took over leadership on Friday. In his final speech, Draghi who governed the bank for 8 years, called for unity among ECB and Eurozone leaders. He also acknowledged that monetary stimulus is not as effective as it once was so he urges governments to fill in the gaps with fiscal policy.

Elsewhere, Peugeot and Fiat both rose on the news they were in exclusive talks and a deal was later announced for a 50/50 merger. LVMH confirmed that it had tendered a bid for Tiffany and that talks were ongoing. A deal would help the group increase the jewellery sector&#39;s contribution to profits and its US presence. Atos decided to accelerate its exit from Worldline. After distributing Worldline shares to its own shareholders last May, it is to place more with institutional investors, leaving it with around 13%.

**Asian Markets**

Asian markets ticked higher as the Japanese Nikkei 225 increased by 51 points, while the Chinese Shanghai Composite index was up by 0.1%. The large-cap CSI 300 index rose 1.4%.

The BoJ decided to keep rates unchanged at its committee meeting which was expected given apparent progress in US-China trade talks and the decreasing likelihood of a No-Deal Brexit. The central bank governor allowed that the central bank may trim interest rates at one point in the future if overseas risks escalate and threaten to hurt Japan&#39;s recovering economy.

September retail sales climbed at the fastest pace in more than 5 years directly ahead of the VAT increase. The hike in the value-added tax rate to 10% was postponed three times and it is the first increase since the bump to 8% from 5% in April 2014. Retail sales increased by 9.1% YoY powered by demand for cars, household durables, apparel and food items.  The latest national tax increase to 10% from 8% is designed to help reduce Japan&#39;s massive fiscal deficit and provide funds for additional social spending. The government has taken several steps to reduce the hardship of the new tax rate for low-income households by offering subsidies on certain goods and services and discounts for cashless payments.

In China, the manufacturing PMI rose to 51.7 points in October, which is its best reading since February of 2017. Even so, other data during the week showed the continued toll of U.S. tariffs on the country&#39;s manufacturing sector.  The country&#39;s official non-manufacturing PMI fell to 52.8 in October from 53.7 in September. Unlike the Caixin PMI, the official PMI surveys roughly 3,000 mostly larger, state-owned companies.

Ongoing trade-related uncertainty appeared to play a large role in the discrepancy between the official and unofficial PMIs in October, making it difficult to ascertain the strength of China&#39;s economy as it enters the fourth quarter. China&#39;s economy grew a below-forecast 6.0% in the third quarter, marking the country&#39;s slowest growth pace since 1992.

Weekly Market Commentary (October 28 – November 01)

**Weekly Market Commentary (October 21 – October 25)**

**Global Market Highlights**

- **As the earnings season continues, markets rise**

- **US macro data disappoints**

- **Brexit debate pressures GBP**

- **Japanese exports decline**

- **Chinese equities rise**



**US Markets**

Equities in the US posted slight gains as the Q3 earnings season continued, but the week lacked any major daily moves driven by geopolitical news that characterized trading sessions in the past few weeks.The week was more about investors focusing on single stocks due to the surprises that the earnings brought to the markets. Companies such as Amazon and Tesla were some of the largest  surprises as Amazon&#39;s earnings disappointed while Tesla reported Q3 profit. The tech-heavy Nasdaq Composite index outperformed the broader market as it gained 1.90% over the course of the week. The S&amp;P 500 index gained 1.22% while the Dow Jones Industrial Average was up 0.70%. Within the large capitalization stocks, the transportation segment was the best performer, which was driven by strong earnings reports from airlines, including American Airlines and Southwest Airlines.

The week brought some news about the Boeing 737 Max situation as Boeing reported its Q3 performance. The company announced that its quarterly profit and sales dropped significantly from a year ago which was caused by the grounding of the 737 Max jet. However, after the earnings release, the company posted significant gains, one of its best one-day gains in recent weeks, as market participants welcomed the company&#39;s statements anticipating that the 737 Max jet will return to service before the end of the year.

Within the industrials sector, Caterpillar also released its quarterly report which fell short of investor expectations. One of the biggest winners this week, was Tesla which gained almost 30% during the week after its Q3 report. The company generated a Q3 profit while analysts expected a loss. Even though Tesla is one of the most shorted stocks, short sellers were trying to cover their positions by buying up Tesla shares, which was also helping Tesla&#39;s share price.

Economic data disappointed investors as the final October University of Michigan Consumer Sentiment Index was adjusted lower to 95.5 points, but it was still higher than September&#39;s 93.2 reading. Durable goods orders showed a 1.1% decline in September, while  orders of nondefense capital goods also declined by 0.5%, which is more than the market expected. On the other hand, there was some bright light as the Flash US manufacturing PMI climbed to its highest level in six months, reaching 51.5 points, showing that the manufacturing sector could be stabilizing.

**European Markets**

Markets were also mostly higher in Europe, driven higher by a strong start to the earnings season. However, these gains were capped by Brexit uncertainty and US-China trade tensions. The Stoxx Europe 600 index gained 1.5% and the German Dax 30 and FTSE 100 indices were up more than 2% for the week.

As Brexit uncertainty rose, the pound came under pressure, especially after the French president blocked an EU attempt to delay Brexit for three months. What is even more interesting is that Emmanuel Macron was the only dissenter at the EU leadership meeting in Brussels. The final decision was deferred until Tuesday. The reason why the French president is voted against the extension is because he believes that the delay should only last until November 30, while the other EU governments are willing to postpone Brexit until the 31st of January, which would allow time for a general election in the UK. Later, Boris Johnson stated that he will seek an election on December 12th.

German data was mixed this week, with consumer confidence dipping for the month of November. The ifo institute&#39;s confidence report for this month showed that the assessment of the current situation came in below forecasts, but the expectations component of the survey improved more than expected.

**Asian Markets**

Asian equity markets were also higher for the week as the Japanese Nikkei 225 was up 307 points or 1.4%, while the Chinese Shanghai Composite index increased by 0.6%. The large capitalization CSI 300 index added 0.7% for the week.

The Japanese economy is also on a downtrend as the nation&#39;s exports declined at a steeper rate than expected in September. On a YoY basis, shipments fell 5.2%, which marks the tenth monthly declines in a row.  The weakest areas include a 6.7% drop in shipments to China and a 15.9% decline to South Korea due to current political situations.

Japan has placed export restrictions on shipments of several chemicals that South Korea uses for semiconductor fabrication, which has caused mounting tensions between the two trading partners. The persistent weakness in exports has fueled speculation that the Bank of Japan  will loosen monetary policy at its October 30–31 policy meeting.

Manufacturing activity is also slowing in Japan as October&#39;s new manufacturing orders declined to 48.5 points compared to 48.9 points in September. This month&#39;s decline was the fastest pace since June 2016.

At the beginning of the month, investors seemed certain that the Bank of Japan would provide more monetary stimulus during the month. According to a Bloomberg report on October 11, overnight swaps indicated a 100% probability of a rate cut at the BoJ&#39;s late-October meeting. However, with less than a week until the central bank policy gathering, the swaps market is now indicating about a 50% likelihood that the BoJ will cut its short-term interest rate target which currently sits at -0.1%. Haruhiko Kuroda, the governor of the BoJ,  has stated his willingness to act, but economic conditions and investor sentiment appear to have improved, and stocks have rallied over the past two weeks. Less tension in the U.S.-China trade dispute is the largest positive factor and the possibility of a no-deal Brexit also looks less likely. If the central bankers feel confident that a recession is not imminent, they may decide to hold off on further policy action.

Chinese indices were up due to solid earnings reports and a large liquidity injection by the central bank boosted sentiment. Better-than-expected Q3 earnings reports eased worries about corporate earnings and performance at a time when China&#39;s economy is under growing pressure from the US trade war and an economic decline.

Weekly Market Commentary (October 21 – October 25)

**Weekly Market Commentary (October 14 – October 18)**

**Global Market Highlights**

- **US stocks higher as earnings season kicks-off**

- **Retail sales declines in the US as economic calendar was weak**

- **Pound increases as Brexit talks advance**

**US Markets**

Most of the major US indices recorded slight gains over the week  as investors welcomed some upside surprises as the third quarter earnings season began. Health care stocks outperformed within the S&amp;P 500, which was helped by gains in UnitedHealth Group after the company reported better-than-expected revenues on Tuesday and raised profit guidance for the year.  On the other hand, Technology shares underperformed the benchmark index, weighed down by a revenue miss from IBM.

Stocks recorded most of their gains on Tuesday, which was the start of the earnings season on the Street. This week 50 of the S&amp;P 500 companies were expected to report Q3 results. Earnings from investment banks such as JP Morgan Chase and Goldman Sachs surprised on the upside, and investors were encouraged by positive outlooks from UnitedHealth and Johnson &amp; Johnson, even though shares of the latter plummeted on Friday.

On Wednesday, Netflix continued with its Q3 performance report as it reported bigger-than-expected gain in international subscriptions, leading to a jump in its stock price, which pushed the major indices higher as well.  Weak economic data overshadowed the enthusiasm  over the earnings season as US retail sales unexpectedly declined by 0.3% in September. Industrial production fell more than anticipated in September as it was dragged down in part by the GM strike. Industrial production has been on a declining streak as it has been declining in five of the last nine months.

On Tuesday, the IMF cut its 2019 growth forecast for the global economy from 3.2% to 3.0% which was caused by rising trade tensions. The high yield market traded higher on the back of equity gains.



**European Markets**

Equity markets on the European continent were mixed after the EU and the UK struck a tentative deal, and they agreed to new terms for the United Kingdom to exit the EU. Furthermore, news of a sharp contraction in the Chinese economy pressured stocks, which started a fresh round of worries about a slowing global economy. The Stoxx Europe 600 index was flat, the export-heavy German DAX was up 1.4% and the UK&#39;s FTSE 100 index fell about 1%.

The British pound jumped 1.7% higher for the week after EU27 leaders endorsed the new Brexit agreement. On Saturday, Johnson lost in parliament and he was ordered to ask for an extension from the EU, which he did to abide by the Benn legislation.

The German government continued to fall into a recession as the government lowered its growth forecast for 2020 to 1% from 1.5% and left its 2019 forecast unchanged at 0.5%. The slowing economy is attributed to Brexit and international trade conflicts.

**Asian Markets**

The major asian indices were mixed as the Japanese Nikkei 225 advanced 3.2%, while the Chinese CSI 300 index shed 1.2% and the Shanghai index fell 1.1%. In Japan, the consumer price index fell to its lowest level since April 2017, which added pressure for the BoJ to ease its monetary policy.

Additional worries have risen, when Toyota Finance said that it is preparing to issue Japan&#39;s first zero interest rate corporate bond, which indicates that the negative yields are bleeding into the highest-quality tiers of corporate issuance.

Equities in China showed a loss as the third-quarter economic growth missed forecasts, underscoring the continued toll of the US trade battle and raised the recession risk for the global economy. Despite the slowing Chinese economy, China&#39;s 6.2% growth still suggests that Beijing can still hit its full-year growth target of 6%-6.5%.

Weekly Market Commentary (October 14 – October 18)

**Weekly Market Commentary (October 07 – October 11)**

**Global Market Highlights**

- **US equity benchmarks edged higher as trade tensions eased**

- **UK pound gained as Brexit talks continued**

- **Economic weakening continues in Germany**

- **Japan&#39;s economy is also showing signs of weakness**



**US Markets**

Equity indices rose in the United States as trade talks between the US and China advanced which sent stocks higher. Within the main benchmark, the S&amp;P 500 index, boosted the export sensitive technology, industrials, and  materials sectors. As bond yields started to increase again made the relatively high dividend yield utilities stock less interesting for investors and in response they lagged behind the benchmark index. One of the largest declines this week occurred with Pacific Gas &amp; Electric, which fell 28% over the course of the week, as the California utility company cut power to hundreds of thousands of customers to prevent a recurrence of the wildfires sparked by power lines last fall.

The major driver of sentiment this week was trade developments between the United States and China. Developments started on Monday when reports stated that China is willing to accept a partial trade deal which moved stocks higher, but these gains diminished as another report said that intellectual property protections for foreign firms in China was not on the table. On Tuesday, events turned for the worse as the Commerce Department was planning to add 28 Chinese firms to a blacklist banning them from buying components from US firms. In response, Chinese officials said that the US should wait for retaliatory measures. Further rumors about the White House was considering limiting investments in China by government pensions funds also diminished sentiment.

As official trade talks began between the two nations in Washington on Thursday, sentiment sparked a major turnaround in the markets. Equities started to increase as a report from The New York Times stated that the US was getting ready to license new sales of goods to Chinese telecommunication giant, Huawei. Bloomberg, the n followed up with news that US negotiators are also open for a partial trade deal that would presumably include a currency pact which was first discussed in February. Thursday evening, President Donald Trump, tweeted that he is meeting with Chinese Vice Premier Liu He on Friday, which boosted optimism on the markets.

Markets continued to rally on Friday as Donald Trump tweeted that the trade talks are going well. Just before the markets closed on Friday, the two sides announced that they have reached a phase one deal, in which the US would suspend planned tariff increases on october 15th and in return, China would increase its purchases of agricultural products, along with agreements on protection of IP, access for financial services firms, and currency pledges.

The week was light on economic data as the import price index rose 0.2% for September, which outperformed the projected flat reading. The October prelim University of Michigan Consumer Sentiment Index rose to 97 points from September&#39;s 92 point reading.

Even though it was a good week for equities, it was bad for bond markets. The benchmark 10-year government bond&#39;s yield jumped by 23 basis points over the course of the week. Volatility within the oil markets continued as prices rose after a report of an attack on an Iranian oil tanker in the Red Sea stoked concerns about Middle East tensions.

The major US equity indices ended the week higher as the S&amp;P 500 index gained 0.62%, while the Dow Jones Industrial Average edged 0.91% higher. The technology-heavy Nasdaq Composite index increased by 0.93%.

**European Markets**

European equity markets also rallied as new signs of progress on the US and China trade talks and Brexit negotiations supported sentiment. The Stoxx Europe 600 index gained 2.7%, the German export-heavy DAX 30 index was up 4.2%, and the UK&#39;s FTSE 100 index was 1% higher for the week.

As a Brexit deal is closer to be achieved, the pound jumped close to 3% compared to the US dollar. The sentiment got better after the prime minister of the UK and Ireland reported that they could see a possible deal come through.

Sentiment also got better as the European Commission said that the EU and the UK have agreed to hold intensive negotiations over the coming days. The EU insists that a deal must avoid a hard border on the Irish island, protect the all-island economy and the Good Friday agreement. They must also safeguard the integrity of the single market.

In Germany, economic data continued to deteriorate as exports fell 1.8%, which is more than expected. Falling exports are attributed to slowing global growth, trade tensions, and Brexit. Germand industrial production also fell more than expected in August due to weaker domestic demand.

**Asian Markets**

Asian markets were mixed as the Japanese Nikkei 225 fell 2.1% due to the worsening economy, while the Chinese Shanghai Composite Index gained 2.4%. The large-cap CSI 300 index was up 2.5%.

In Japan, the Cabinet Office reported that the business conditions in the country are worsening as its index of business conditions declined to 99.3 points in August. This reading suggests that the economy may be going towards a recession, which is exactly the opposite of last month&#39;s assessment, when the Cabinet Office said that the economy is recovering at a moderate pace.

Even though the economy is slipping into a recession,unemployment remains at a 26-year low. The unemployment reading in August was unchanged at 2.2%, which means that there were 159 job openings for every 100 applicants.

In China, stocks surged as progress is being made in trade talks that concluded on Friday in Washington. The head of the IMF warned that the US&#39;s trade war could cost the global economy about $700 billion by 2020, which corresponds to the size of Switzerland&#39;s entire economy. As the US-China trade negotiations are ongoing, markets will continue to experience continued volatility and investors are skeptical that a comprehensive trade deal will be struck soon.

Weekly Market Commentary (October 07 – October 11)

**Weekly Market Commentary (September 30 – October 04)**

**Global Market Highlights**

- **Slowdown in US manufacturing weighs on equities**

- **US unemployment hits 50-year low**

- **Weak macroeconomic data hints rate cuts in the UK**

- **German services sector contracts**

- **US - EU trade dispute**

**US markets**

The major US equity indices suffered their third consecutive week of losses as macroeconomic data suggests an economic slowdown especially within the manufacturing segment of the economy. As more investors move toward safer assets, long-term bond yields declined. Strength in Apple and other information technology shares helped the Nasdaq Composite index edge higher. The energy sector fell as growth worries pushed crude prices back to their lowest level since August.

Equities suffered most of their losses by midweek as the ISM Manufacturing index unexpectedly fell further into contraction territory during September. The index fell for the sixth consecutive month and reached its lowest level since 2009. The unexpected data caused the S&amp;P 500 index to fall more than 1% for 2 days back-to-back.

On Thursday, the ISM&#39;s report of nonmanufacturing activity also fell to its lowest level in three years, which initially caused a large drop in equities, but later recovered and ended the day with a sharp rally. The turnaround could be attributed to the fact that market participants changed their sentiment and their hopes started to grow that the Federal Reserve will continue cutting interest rates to tackle the economic slowdown. Futures markets are indicating a 90% chance for an interest rate cut during the Fed&#39;s end -of-month meeting.

The week was heavy with economic data and the most surprising data came from the labor market. The unemployment rate fell to 3.5% in September from August&#39;s 3.7% reading. Nonfarm payrolls disappointed as they grew by 136,000 jobs in September compared to the expected 145,000 jobs created. Private sector payrolls also grew less than expected as only 114,000 new jobs were created in September versus the expected 130,000 new jobs.

The major indices were mixed for the week as disappointing economic data weighed on equities. The S&amp;P 500 index dropped 0.33% as the Dow Jones Industrial Average shed 0.92% and the Nasdaq Composite Index increased by 0.52%. Treasuries ended the week higher as yields fell both on the 10-year government bond and the 30-year government bond. The 10-year bond yield ended the week at 1.53% while the 30-year bond yield ended the weak at 2.017%.

**European Markets**

European markets fell substantially more than US markets as the Pan-European Stoxx Europe 600 index dropped close to 3%, while the UK&#39;s FTSE 100 lost more than 3.5% of its value. The sharp drop was caused by weak economic data and additional economic worries emerged as the US announced tariffs on EU exports. The German DAX 30 index dropped almost 3% as its services sector contracts.

UK markets showed a sharp decline as fears of a recession rose. The  services PMI index fell below 50 points, which signals an economic contraction. The weakness in the sector is a big concern as it makes up 80% of the UK economy and this coupled with weakness in employment will give the Bank of England further impetus to cut its benchmark interest rate while addressing concerns of an overshoot in wage and CPI inflation. Analysts are expecting at least one rate cut from the BoE in the next six months.

The manufacturing recession in Germany spread to the services sector, which dropped more than expected, which pushed the overall PMI into contraction territory for the first time in six years. This caused several institutions to cut their economic growth forecasts for the country to 0.5% from 0.8%. Brexit uncertainty has also taken a toll on German manufacturing by way of UK orders, which make up 16% of Germany&#39;s external trade surplus.

The global trade situation also took a turn for the worse as the US announced that it will impose a 25% tariff on a range of imports that the US buys from the EU, such as cheese, olives, aircraft, etc. The move came after the WTO ruled that the U.S. can place tariffs on $7.5 billion of EU imports in retaliation for government aid from certain EU countries to Boeing rival Airbus. U.S. officials have said the tariffs should be in place by October 18.

**Asian Markets**

Chinese markets were closed for the week due to the 70th anniversary of the People&#39;s Republic of China and they will open on Tuesday. Japanese markets fell as the Nikkei 225 index decreased by 2.1%, while its YTD performance is at 7.0%. The Q3 Tankan index, which measure the financial sentiment of domestic companies, dropped to its lowest level since 2013, but it was better than economists expected. The survey confirmed that near-term manufacturing sentiment is poor, which is hurt by slowing economic trends and the trade dispute between the US and China.

Japan&#39;s regional banks, desperate to shore up waning earnings, are making riskier bets that could lead to losses in the next economic downturn. In search of returns, which have been squeezed by negative interest rates, local lenders have increased their exposure to real estate and small-business loans, which has caused a spike in bad-debt costs. Regional bank holdings of Japanese government bonds declined to about half the level of five years ago and correspondingly, banks have increased exposure to riskier foreign assets.

Next week, trade developments will dominate major headlines as US trade talks resume on October 10-11. The US is also preparing to raise tariffs on $250 billion in Chinese goods to 30% on October 15th. The tariff escalation was delayed in good faith. Investors will also watch for news regarding recent reports that the Trump administration is considering restrictions on U.S. investments in Chinese companies and financial markets, including delisting Chinese companies on U.S. securities exchanges.

Outside mainland China, Hong Kong&#39;s benchmark Hang Seng Index, dropped 0.52%,  fell for the third straight week to a one-month low on news that the territory&#39;s embattled government would use emergency powers to enact a ban on face masks to put an end to growing anti-government protests.

Weekly Market Commentary (September 30 – October 04)

**Market themes and portfolio summary for September 2019**

After the geopolitically troubled August, US equity markets tested their all-time highs again before ending the month somewhat lower. Although equities overall advanced, we have seen a significant factor rotation as growth, momentum and minimum-volatility stocks reversed, but value stocks rallied after years of underperformance. Given its nature, our growth stock portfolio underperformed. The major detractors were PAYS, MOMO and SINA. However, our quality stock portfolio outperformed the market, primarily driven by SNX, which jumped 20% after its better-than-expected earnings release. In addition, INTC also significantly contributed to performance

Among the most prominent headlines were a second interest rate cut from the Fed, a major drone attack on Saudi Arabia&#39;s oil company and some mixed news regarding the US-China relationship. In terms of macroeconomics, major economies continued to slow, pertaining market fears of an oncoming recession.

While we are generally optimistic about the global economy and equity markets – driven by strong consumer demand – now the outlook hinges on the outcome of the US-China trade talks taking place in early October. Assuming some progress or even a mini-deal, we are maintaining our pro-risk positioning.

**US:**

At the September FOMC meeting, Jerome Powell announced to &quot;…lower the target range for the federal funds rate to 1-3/4 to 2 percent&quot; citing &quot;the implications of global developments for the economic outlook as well as muted inflation pressures.&quot; In addition, he noted that &quot;This action supports the Committee&#39;s view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee&#39;s symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain. … [they] will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.&quot;

In terms of their economic projections, they expect 2.2% GDP growth for 2019 (up 10 bps since June) and still 1.9% in the longer run.

Contrary, the US ISM Manufacturing PMI dipped below 50 for the first time since 2016. (As of early October, it went as low as 47.8, the worst reading in a decade.)

**Europe:**

Not only the Fed, but the ECB too cut its already-negative deposit rate to -0.5% and introduced a new round of quantitative easing without a defined time limit. Below market expectations, the asset purchase programme will comprise €20bn assets per month from the beginning of November. In addition, Mario Draghi also tweaked his forward guidance, saying that the central bank now expects to maintain interest rates at current or lower levels until inflation converges &quot;robustly&quot; with the target of close to but below 2%.

While market participants debate the effectiveness of the new stimulus package, the economy indeed continued to deteriorate. According to Trading Economics, the IHS Markit/BME Germany Manufacturing PMI was revised slightly higher to 41.7 in September 2019 from a preliminary estimate of 41.4 and compared to the previous month&#39;s final 43.5. Still, the latest reading pointed to the steepest contraction in the sector since June 2009 as output shrank the most since July 2012 and new orders dropped to the greatest extent since April 2009, leading to a further reduction in backlogs of work.

**China:**

While the US and German manufacturing data shows contraction, the Caixin readings came in at 50.4 in September and reached 51.4 in early October, both above expectations. According to Trading Economics, the latest reading pointed to the strongest pace of expansion in the manufacturing sector since February 2018, as output grew the most in over a year and new orders increased at the fastest pace since March 2018 despite a further reduction in overseas sales.

On the trade front, President Trump and Mr. Xi seemed to find new ground to continue their negotiations. As such, the parties are scheduled to meet in early October and the Chinese indeed started buying agricultural goods. However, late September headlines leaked that the government is considering delisting Chinese companies from the US stock exchange. Markets immediately plunged, but partially bounced backed after the Treasury announced that the administration is not contemplating such actions &quot;at this time&quot;.

**\*\*\*Disclaimers\*\*\***
 
**Investing involves risks, including possible loss of principal. Past performance is no guarantee of future results.**
 
_The strategies and companies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security. This material is not intended to be relied upon as a forecast, research or investment advice. There is no guarantee that any strategies discussed will be effective._
 
_This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice._
 
_This material contains general information only and does not take into account an individual&#39;s financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision._
 
_©2019 MFC Equity. All rights reserved._

September 2019

**Weekly Market Commentary (September 23 – September 27)**

**Global Market Highlights**

- **Trade and political uncertainty continues**

- **China criticism and impeachment inquiry rattles markets**

- **UK supreme court rules against Johnson&#39;s suspension**

- **Japan&#39;s manufacturing sector dips to a new low**

- **US and Japan reach partial trade deal**



**US Markets**

Equities fell for the week as the new policy environment dominated market sentiment. For the second week, small cap shares underperformed large caps. Within the S&amp;P 500, the typically defensive utilities sector outperformed, while communication services, health care, and energy shares lagged.

The week showed continued weakness for the IPO market especially for high-valuation technology unicorns, companies worth more than $1 billion. Peloton, the networked fitness equipment-maker, suffered the second largest drop of the year of any IPO on the day of its debut. On Friday, weakness in the IPO market continued as sports content company Endeavor pulled its IPO as did office hosting site WeWork a week earlier to wait for a more favorable environment.

By midweek, volatility was driven by mixed signals on the US - China trade dispute. Treasury Secretary, Steven Mnuchin, announced that trade talks will resume between the two nations on October 7th, as well as China announced new waivers for imports of US soybeans. However, sentiment got worse when Donald Trump accused China of theft of intellectual property and trade secrets on a grand scale in front of the United Nations, while promising that he would not accept a bad deal.  Stocks fell further as Nancy Pelosi endorsed an impeachment inquiry.

Stocks edged higher on Wednesday as the US President remarked to reporters that a deal with China might happen sooner than markets think, which calmed fears. Investors may have also reconsidered the implications of the impeachment investigation. If Trump is formally impeached by the House of Representatives—which requires the passage by a simple majority of &quot;articles of impeachment&quot;—a two-thirds majority in the Republican-controlled Senate would be required to remove the president from office. The economic impact of the impeachment inquiry is also highly uncertain. While some believe acrimony over the hearings might further complicate negotiations over the budget and other matters, others note that impeachment pressure might also encourage the White House to strike a trade deal with China before the November 2020 election.

Stocks fell on Friday after reports surfaced that the White House was considering restricting US investment in China and forcing US exchanges to delist the shares of Chinese companies.  In response, shares of Alibaba, Tencent, and other Chinese internet companies  fell sharply, weighing on the technology sector in particular.

Economic data for the week were mixed but showed a rather negative picture of the US economy. Personal income rose 0.4% higher in August which matched the forecasts. Personal spending ticked 0.1% higher, which was below the estimated 0.3%, in the same month. The PCE Core Index was 0.1% higher and on a YoY basis it was 1.8% higher matching estimates. August prelim durable goods orders rose 0.2% in August compared to the estimated 1.1% decline. The September University of Michigan Consumer Sentiment Index rose to 93.2 points compared to the estimates of 92.1 points.

For the week, the major US equity indices fell. The S&amp;P 500 fell 1.01%, while the Dow Jones Industrial Average decreased by 0.43%. The technology heavy Nasdaq Composite index dropped by 2.19%.

**European Markets**

Equity markets were lower on the week as weak economic data and US - China trade tensions continued to dampen sentiment across the region. The European Stoxx Europe 600 index dropped 0.48%, the export-heavy German Dax 30 was 0.85% lower. The UK&#39;s FTSE 100 index rose 0.6% boosted by hopes for lower UK interest rates.

Ahead of the October 31st Brexit deadline, the battle between Prime Minister Boris Johnson and Parliament intensified as the UK&#39;s highest court ruled that Boris Jonhson&#39;s suspension of Parliament was against the laws. Johnson is now facing calls to resign just weeks before the UK&#39;s expected departure from the EU. The ruling was another blow to the embattled Johnson after multiple defeats in Parliament and defections in his Conservative Party. While he is still calling for a general election, there are few signs that he would be able to win the two-thirds majority approval of Parliament needed to do so.

While UK equities rose, the pound came under pressure, falling 1.4% compared to the USD, after a BoE policymaker said that the central bank might want to consider lowering rates even if a Brexit deal is reached. The banker also noted that uncertainty, which would act as a brake on the UK economy, is likely to persist even if a No-Deal Brexit is avoided.

The flash eurozone manufacturing purchasing managers index (PMI) fell to its worst level in nearly seven years, with the reading at 45.6 in September, down from 47 in August. Weakness was also seen in the services sector, where the flash eurozone services PMI fell to an eight-month low. New orders for goods and services fell at their fastest pace in more than six years.

**Asian Markets**

The major Asian indices fell in the region as the Japanese Nikkei 225 index fell 0.9%, reaching a 9.3% gain for the year. In China, the benchmark Shanghai Composite Index sank 2.5% and the large-cap CSI 300 index shed 2.1%.

Japanese manufacturing activity fell at its fastest clip since February due to the global economic slowdown and heightened concerns about the U.S.-China trade dispute. The Jibun Bank Flash Japan Manufacturing Purchasing Managers&#39; Index (PMI) fell to 48.9 points in September from 49.3 points in August. Other factors hurting Japanese manufacturers include the ongoing protests in Hong Kong, Brexit uncertainties, the tense relationship between Japan and South Korea, as well as the upcoming consumption tax increase in October. Japan&#39;s services sector seemed to be in better shape. Jibun Bank Flash Japan Services PMI data released on Tuesday showed a positive 52.8 points reading for September, a modest decline from 53.3 points from the previous month. The Bank of Japan (BOJ) has indicated its willingness to take measures to support the economy, possibly as early as its next policy meeting in October, if business conditions, manufacturing, or the broader economy shows signs of deterioration.

Japan&#39;s Statistics Bureau reported that core (nonfood) consumer prices in Tokyo rose only 0.5% September versus a year earlier, the slowest rate in over a year and below estimates. The BOJ&#39;s inaction at its September 18–19 policy meeting may have been because policymakers are concerned that increasingly negative interest rates will not lift inflation to the BOJ&#39;s 2% target. Some economists believe that inflation could continue to decline through the end of the year because of the imminent consumption tax hike—which may discourage spending—and the implementation of government subsidies.

On Wednesday, U.S. President Trump and Japanese Prime Minister Abe signed a limited trade deal that takes effect at the beginning of 2020. The agreement will lead to lower tariffs on U.S. agricultural and other goods while allowing for tariff-free digital commerce between the two countries. While the possibility of U.S. tariffs on Japanese auto exports was not addressed, the two countries are expected to begin working on a wider-reaching trade agreement later in 2020.

The Japanese government is planning to implement new rules that could limit foreigners from owning large stakes in companies involved in national security. The government could lower the threshold for ownership in these companies to as low as 1% versus the current 10%. This would force many institutional investors to obtain government approval before investing in many of Japan&#39;s largest companies in industries, such as aerospace, telecommunications, and software. In addition, the proposed new rules could mandate a government review of outside board nominations in companies in sensitive industries. Many investors believe that Japan&#39;s markets have benefited from the progress Prime Minister Abe has made in revising the corporate governance and stewardship practices in recent years. These proposed changes could undo Abe&#39;s efforts to promote foreign investment in Japan.

China reported that profits at industrial companies fell in August, reversing the previous month&#39;s gain, amid a slowdown in industrial production and sales and a drop in producer prices. The fall in producer prices—also known as factory gate prices, a key barometer of industrial demand in China—is worrisome for Beijing, which has lately stepped up easing measures to boost the slowing economy.

A lack of positive headlines related to U.S. trade negotiations also led investors to take profits before China&#39;s National Day holiday, during which mainland markets will be closed from October 1–7. On Thursday, China&#39;s Ministry of Commerce confirmed that China has bought a considerable amount of U.S. soybeans and pork ahead of high-level talks set for October 10–11 in Washington but offered no new information. The next round of talks will likely result in a delay in tariffs as a goodwill gesture and not a conclusive trade deal. Following the delay, another tariff hike will likely occur in December and bilateral trade tensions will likely persist into 2020.

September 23 – September 27

**Weekly Market Commentary (September 16 – September 20)**

**Global Market Highlights**

- **Commodities, especially crude oil showed volatility**

- **The Federal Reserve cuts interest rates as expected**

- **New hope for a Brexit deal**

- **BOJ leaves interest rates unchanged**



**US Markets**

US equities finished the week lower after a volatile week for oil caused by the attack on the Saudi Arabian oil facilities. Indices were also lower after the Federal Reserve cut its interest rates. Over the course of the week, large-cap stocks outperformed small-caps, while growth stocks performed better than value stocks this week.

Tragedy struck after the September 14th attack on major oil facilities in Saudi Arabia which knocked out 5% of the global oil supply and pushed WTI 13% higher. This was the largest one-day percentage increase since 2016. Oil prices remained volatile throughout the week as Saudi Arabia adjusted its outlook for repairing its facilities and getting back to normal operation.

Even though crude prices exploded, the general equities market did not have such a reaction to the attacks other than the prices of transportation, airline, and railroad companies which are sensitive to swings in commodity prices. Due to this, the Dow Jones Transportation Average sunk 3% over the week.

On Wednesday, the two-day monetary policy meeting has ended for the Federal Reserve. The decision was to lower its federal funds target rate range by 25 basis points, decreasing it to 1.75% - 2.00%. The market has been anticipating the move and Fed officials are not seeing the target range to drop below the 1.50% - 1.75% range so there is anticipation for one more cut this year. Furthermore, there seems to be little consensus between policy makers and about the direction of monetary policy as three members of the FOMC dissented from the policy move.

US treasuries have decreased as increasing tension in the Middle East seemed to persuade investors to move into safer assets. The major US indices were lower for the week as the S&amp;P 500 decreased by 0.51%, the Dow Jones Industrial Average is down by 1.05%, and the Nasdaq Composite Index shed 0.72%.

**European Markets**

Equities were mixed on the European continent even as trade negotiations between the US and China resumed as well as hopes for a Brexit deal rose. The Stoxx 600 index gained 0.4% while the German Dax 30 gained 0.65%  and the UK&#39;s FTSE 100 dropped 0.26%.

New hopes for a potential Brexit deal emerged as European Commission President Jean-Claude Juncker seemed to open the door to a Brexit deal when he stated that he is ready to scrap the Irish backstop if the UK could come up with a possible alternative. Some analysts still give a 70% chance that the UK will leave the EU without a deal.

The Bank of England kept its main interest rate unchanged this week but signaled that Brexit uncertainty will keep rates lower for longer and that a No-Deal Brexit would hurt the economy, leading to slower growth, higher inflation rate, and a drop in the value of the pound. UK unemployment rate hit a low of 3.8%, and YoY average weekly earnings increased 3.8% in July.

The ZEW survey of financial market experts showed sentiment in Germany rose in September, however the survey also found out that the mood about current economic conditions is at its lowest level in nine years. The institute still warned that the outlook for Germany remained negative due to trade disputes and Brexit uncertainty.

**Asian Markets**

The major Asian equity indices were mixed during the week as the Japanese Nikkei 225 advanced 0.9%, while the Chinese Shanghai Composite index shed 0.8% and the large-cap CSI 300 index fell 0.9%.

At its policy meeting, the BoJ voted 7-2 to leave short-term interest rates at -0.1% and to continue targeting a 10-year government bond yield of about 0%. The board voted unanimously to maintain other asset purchases. The policy statement reiterated forward guidance that interest rates will remain at extremely low levels through around spring 2020 and that policymakers would not hesitate to take additional easing measures if there is a greater possibility that momentum towardachieving their 2% inflation target is in jeopardy.

While the government stated that the economy is recovering at a moderate pace, it also acknowledged weakness in the export sector. Japanese exports have declined for nine consecutive months, -8.2% YoY in august, due to weakness in the global economy and the trade dispute.

President Donald Trump said that the U.S. has reached an initial trade accord with Japan, which could be finalized in the coming weeks. The agreement offers U.S. farmers better access to Japan&#39;s market in exchange for lower tariffs on various industrial goods and autos. The U.S. president also told Congress that the government will be entering an executive agreement with Tokyo on digital trade. President Trump is expected to meet with Prime Minister Shinzo Abe in New York next week.

**Saudi Arabia Situation**

Saudi stocks, measured by the Tadawul All Share index, increased 1.2% over the week despite the attacks on its oil facilities.  On September 14, the oil production facilities in Abqaiq and the Khurais oil field—both of which are owned by state-owned Saudi Arabian Oil Company (Saudi Aramco)—were attacked by drones and missiles that started massive fires. Abqaiq is the location of the world&#39;s largest oil processing plant, while Khurais is the country&#39;s second-largest oil field. Iran-allied Houthi rebels in Saudi Arabia&#39;s southern neighbor Yemen claimed responsibility, but U.S. and Saudi officials believe the attacks are more directly tied to Iran.

Nevertheless, as a result of these attacks, approximately half of total Saudi production was halted. Because Saudi Arabia normally supplies about 10% of the world&#39;s oil, this temporary loss of production resulted in a global oil price spike when commodity trading resumed early Monday morning in Asia. By the end of the week, oil prices had backed away from recent highs amid Saudi Aramco management expectations that production will return to 9.8 million barrels per day by late October. However, the increase in geopolitical tensions, particularly Iran&#39;s warning of &quot;all-out war&quot; in the event of U.S. or Saudi retaliation, kept regional markets on edge and seemed to put a floor under oil prices in the near term.

In the fixed income market, yields on Saudi Arabian sovereign debt and Saudi Aramco bonds spiked at the beginning of the week. However, yields retraced their ascent over the course of the week, in part because buyers from the Persian Gulf region and other parts of the world took advantage of the more attractive yields.

September 16 – September 20

**Weekly Market Commentary (September 09 – September 13)**

**Global Market Highlights**

- **Small-Cap and value stocks outperformed Large-Cap equities as market leadership shifts**

- **Trade tensions eased during the week as new exemptions were made from both ends**

- **Macroeconomic data supported sentiment**

- **ECB unveiled fresh stimulus package**

- **GBP rose as worries of a No-Deal Brexit fades**

- **Chinese stocks rally**



**US Markets**

Equities enjoyed a third consecutive week of solid gains as a series of hopeful policies emerged. Though Large-Cap benchmarks rose 1% within their all-time highs, the Small-Cap Russell 2000 index outperformed by a large margin, jumping 5%. Small-Cap stocks were not the only segment that outperformed Large-Cap equities, as slower value stocks also outperformed higher-valued growth stocks. Within the S&amp;P 500 index, the materials, financials, and industrial sectors saw the strongest gains. Financials benefitted from a jump in longer-term bond yields, which favors banks&#39; lending margins, while the other two sectors benefited from easing trade tensions.

Peacemaking gestures on the part of both the White House and China helped ease trade tensions and drove much of the gains in the financial markets. Chinese government officials revealed a list of US products that would be exempt from new tariffs that were scheduled to take effect on September 17th.  Donald Trump quickly responded by tweeting that the US would reschedule a 5% increase on $250 billion of imports from China to October 15th. As a further step to de-escalation, China announced that it would exclude soybeans, pork, and other agricultural products from further tariffs and officials would also encourage domestic companies to purchase US farm products.  The move could also be attributed to the soaring pork prices in the country following an outbreak of African swine fever.

The week was relatively thin on economic news. Retail sales in August rose 0.4%, which outperformed the 0.2% gain that analysts expected. Investors could also trade the preliminary University of Michigan Consumer Sentiment Index for September which rose to 92 points from the 89.8 points in August. Core consumer price inflation rose 2.4% on an annual basis, which is a bit more than anticipated.

Major US equity indices closed the week higher as the S&amp;P 500 index grew 0.96%, while the Dow Jones Industrial Average rose 1.57% and the Nasdaq Composite index edged 0.91% higher.

**European Markets**

 European equity markets jumped after the ECB announced a fresh wave of monetary stimulus which is aimed at stabilizing the eurozone economy. Fear of a No-Deal Brexit also decreased which pushed markets higher. The Stoxx 600 index rose 1.3%, as the export-heavy German DAX 30 index jumped 2.4% and the UK&#39;s FTSE 100 index edged 1.2% higher.

The ECB cut its deposit rate by 10 basis points, from -0.4% to -0.5%, and relaunched its quantitative easing program, stating that it would purchase EUR 20 billion of securities every month beginning November 1. Mario Draghi said that the bank initiated the move mainly because of the eurozone&#39;s low inflation rate, which has remained well below the bank&#39;s &quot;near but just below 2%&quot; target. He noted that ongoing global trade tensions and Brexit concerns had increased risks to the eurozone but said the risk of recession remained small. ECB policymakers also extended forward guidance on rates, saying that they would remain at &quot;present or lower levels&quot; until the rate of inflation moved more in line with the bank&#39;s target.

The British pound rose to its highest level versus the US dollar since July as the Parliament passed a law that forces the UK government to seek a Brexit extension from the EU and avoid a No-Deal Brexit on October 31st. Borsi Johnson is scheduled to meet Jean-Claude Juncker, the President of the European Commission, on October 16th to discuss potential alterations to the deal. The pound was also supported by data that the UK economy grew faster than analysts expected in July.

Germany is in further trouble, as the IFO Institute cut its growth forecast for 2019 to 0.5% from 0.6% as well as lowered it for next year to 1.2% from 1.7%. The institute also warned that a large decline in the manufacturing sector could spread to the services sector and cause an increase in unemployment.

**Asian Markets**

Major Asian equity indices jumped higher as global sentiment improved amid hopes for productive US-China trade talks in October. The Japanese Nikkei 225 index rose 3.72% while the Chinese Shanghai Composite Index increased by 1.1%, which is its highest level in 10 weeks. The large-cap CSI 300 index added 0.6%.

Even though the global economic outlook improved, Japanese economic data discouraged investors. GDP in Q2 showed that the economy grew at a 1.3% pace which is way below the expected 1.8% growth. On Wednesday, as expected, Prime Minister Shinzo Abe announced changes to his Cabinet, with 13 new ministers brought in alongside several longtime loyalists. One of Abe&#39;s intentions over the next few years is to make changes to the Constitution, which was put in place during the U.S.-led occupation of Japan following World War II.

Relations between Japan and South Korea remained tense. As the week began, Seoul made a formal complaint to the WTO about Tokyo&#39;s decision in July to restrict the export of certain technology-related chemicals to South Korea. Before the WTO arbitrates the dispute, the two disagreeing nations are required to attempt to reach a resolution on their own. Separately, the WTO confirmed an earlier ruling that was mostly favorable for Japan over South Korea regarding the latter&#39;s use of anti-dumping duties on Japanese-made industrial airflow valves.

In China, investor sentiment picked up on Wednesday when China announced a range of U.S. goods that would be exempted from 25% tariffs and President Trump said the U.S. would delay a planned 5% tariff hike. Anticipation also rose that China would step up policies to get more money flowing into the slowing economy rose after the release of bearish economic data. During the week, China reported that August factory prices fell deeper into contraction, while consumer prices rose more than expected. Car sales on the mainland, a proxy for domestic consumer demand, sank for the 14th time in the past 15 months. The batch of weak data raised expectations that Beijing would do more to stimulate the economy a week after the central bank cut the required reserve ratio for all banks for the third time this year.

September 09 – September 13

**Weekly Market Commentary (September 02 – September 06)**

**Global Market Highlights**

- **Trade optimism push markets higher**

- **US economic data was positive but offered some mixed emotions**

- **Chances of a No-Deal Brexit diminishes**

- **As Italian coalition is approved, regional yields fall**

- **Trade tensions show toll on German economic data**

- **Tensions between Japan and South Korea rise**

- **The PBOC decreases the required reserve ratio**



**US Markets**

US equities enjoyed a second consecutive week of positive gains as trade optimism grew and economic data surprises Wall Street. Within the S&amp;P 500, energy shares outperformed as oil prices increased after news about falling US inventories emerged and Iran announced that it is scaling back its commitments under the 2015 nuclear deal. Technology shares were also firm as semiconductor shares rose. As longer-term bond yields increased, utilities lagged as they made their above-average dividends less desirable. As Hurricane Dorian is approaching, investors were also rattled by potential infrastructure damage which caused utilities to fall.

As Monday was Labor Day, the first trading day was Tuesday, which started on a down note as news emerged about US officials turning down a request from China to delay tariffs on its goods that went into effect the previous week.

On Wednesday, the rebound was driven by positive news from overseas. Hong Kong&#39;s leadership has withdrawn the extradition proposal that started the months long protests and social unrest. China trade news delivered even more optimism on Thursday. Futures markets jumped as Chinese and US negotiators were planning a formal meeting in Washington in early October, which is later than originally expected, but it was a relief for investors given the recent signs that the talks might be over.

Third factor driving the markets was positive economic data. UsS productivity rose more than expected in Q2 and factory orders jumped 1.4% in July, which is their best gain in a year. The rest of the week&#39;s data was mixed as nonfarm payrolls grew by 130,000 jobs in August compared to the 160,000 forecast. Private sector payrolls came in worse as the 96,000 actual jobs created was way below the anticipated rise of 150,000 jobs. The unemployment rate remained at 3.7% which was in line with forecasts. Average hourly earnings grew 0.4% which was above the 0.3% projection.

The major US indices were higher during the week as the S&amp;P 500 index gained 1.79%, while the Dow Jones Industrial average edged 1.49% higher. The Nasdaq Composite index increased by 1.79%. The VIX volatility index fell back to its lowest level since late July, to 15 points.

**European Markets**

European markets experienced one of their best weeks since June as the US-China trade tensions eased and the Hong Kong unrest seems to be ending, as well as the prospects of a No-Deal Brexit receded. The Stoxx 600 index rose 2.02%, the UK&#39;s FTSE 100 gained 1.04%, while the German export-heavy Dax 30 index edged 2.11% higher. Probably moves out of defensive stocks into cyclicals helped push the markets higher.

As the chances for a No-Deal Brexit on October 31 decreased, the pound gained more than 1% against the US dollar. The gains in the currency and equities came despite the current political turmoil that is going on in the UK. Prime Minister Boris Johnson suffered a loss in a series of parliamentary votes, ending both his efforts to take Britain out of the EU without a deal and his call for a snap election.

Even though, some analysts still see an 80% chance for a No-deal Brexit and it is still possible that the deadline gets extended. The leaders of the opposition have agreed to work jointly to block Johnson&#39;s renewed call for an October 15 general election until a bill forcing him to seek a three-month Brexit delay is approved by Parliament and signed into law. Odds for an election before year&#39;s-end still remains high.

After Italy&#39;s president approved the new coalition government between the Five Star Movement and the center-left Democratic Party, Italian bonds rallied as their yields were pushed to record lows. Former prime minister, Giuseppe Conte, will continue to be prime minister and will lead the coalition government. Analysts expect the coalition government to be more market friendly than the previous government, but significant challenges will remain.

Challenges for the coalition government will include keeping the budget deficit below the 3% of GDP in 2020. The government is expected to submit its 2020 draft budget to the European Commission in October. The government is required to find 20 billion euros in savings to meet EU fiscal targets.

German economic data gave more evidence that the trade tension between China and the US are forcing the German economy into a recession. Manufacturing orders fell more than expected in July as new orders from foreign buyers dropped 6.7%, more than expected. Industrial production fell 4.2% on an annual basis.

**Asian Markets**

Major Asian indices were also higher as the Japnaese Nikkei 225 index increased by 2.39%, while the Shanghai Composite Index and the large-cap CSI 300 index in China both edged 3.9% higher.

Tensions between Japan and South Korea dominated local market headlines as Seoul has dropped Japan from a list of trusted trade partners after the Japanese government took the exact same route. Prior to this, South Korea stopped sharing intelligence with Japan, despite their proximity to North Korea, following Japan&#39;s decision in July to restrict exports to technology-related chemicals to South Korea.

As in domestic news in Japan, reports emerged that the Prime Minister is planning to potentially reshuffle his cabinet and the party leadership around September 11th. A week later, the BoJ will conclude its next monetary policy meeting where no major changes are expected other than the already highly accommodative monetary policy the BoJ is already pursuing.

Chinese news that made headlines included the PBOC&#39;s cut of the required reserve ratio for banks which will increase liquidity within the market. The PBOC cut the ratio for all banks by 0.50 basis points, which becomes effective on the 16th of September. Furthermore, the central bank stated that it would cut the ratio by 100 basis points for some city commercial lenders over two stages in October and November. This rate cut will release $126 billion of liquidity into the Chinese financial system.

According to analysts, a meaningful breakthrough in the current trade situation is unlikely ahead of the 2020 US presidential elections.

September 02 – September 06

**Weekly Market Commentary (August 26 – August 30)**

**Global Market Highlights**

- **Stocks enjoyed their best week in three months**

- **Improved US - China trade talks**

- **Mixed US economic data**

- **Boris Johnson Suspends Parliament**

- **Italian parties agree to a coalition**

- **Germany headed for a recession**

- **Chinese equities decline**



**US Markets**

Equities in the United States had their best week in nearly three months, as investors became more optimistic about the prospects of a trade deal between the US and China. Within the benchmark index, industrials outperformed, which was helped by the rise in the shares of UPS. After negative news, healthcare stocks lagged as did consumer staples, real estate and utilities.

As the trade war got more intense on Monday, the average tariff rate on Chinese goods will rise to 24.3% by December 15, which means that it will nearly double compared to June. The tariffs will also cover about 96.8% of all Chinese imports.

Furthermore, on Monday, Donald Trump announced that the prospects for a trade deal were the best they had been in a long time and saying that China wants to make a deal very badly. Markets became less optimistic on Tuesday when Chinese officials noted that they had no knowledge of recent talks and that they have not changed their position. They also stated that China will not cave to pressures from the United States.

Thursday proved to be another positive day for trade concerns as China announced that they had no plans to respond to the White House&#39;s latest tariff escalation even though the communist country has ample ways to do so. Even though optimism sparked about a potential trade deal, analysts believe that China might be unwilling to reach a trade deal before the 2020 elections, preferring to wait and see if a Democratic candidate is elected as trust in Donald Trump has vanished.

Markets responded to positive macroeconomic data as personal spending increased by 0.6%, which is above the 0.5% estimate. Personal income ticked 0.1% higher in July, but this was not enough to beat the 0.3% gain estimates. Savings rate in July as a percentage of disposable income was 7.7% and PCE Core index was 0.2% higher MoM which is line with expectations. The University of Michigan Consumer Sentiment Index in August fell to 89.8 points which is below the estimates 92.4 points. The Chicago PMI Index surprised the markets as it got back into expansion reaching 50.4 points in August compared to the 47.5 points expected.

The major equity indices ended the week on a positive note as the S&amp;P 500 index gained 2.79% and the Dow Jones Industrial Average index edged 3.002% higher. The Nasdaq Composite index increased by 2.72% by the end of the week.

**European Markets**

European equities increased as talks between the US and China improved and as the Italian parties agreed to form a new coalition government. The Stoxx 600 index rose 2.19%, while the export-heavy Dax 30 index advanced 2.5%. The Italian FTSE MIB index gained 5.15% and the UK&#39; FTSE 100 gained 1.58%.

As British Prime Minister, Boris Johsnon, suspended the parliament from mid-september until October 14th to push through Brexit, the pound came under pressure and equities rose. The move was granted by the Queen and it will reduce the time Brexit opponents have to prevent a disorderly Brexit, but also increases the chances that Johsnon could face a vote of no confidence in his government, triggering a new election. Even though opponents rushed to seek ways to block a no-deal Brexit, analysts believe that this move could give Johnson greater credibility and leverage in the EU renegotiation of a Brexit deal if it comes to that.

It was an interesting week for Italy as well, after the center-left Democratic Party and the populist 5-Star Movement overcame their differences and agreed to attempt to form a coalition government. By doing so, they sidelined Deputy Prime Minister Matteo Salvini, who called for early elections and sought to consolidate his power. President Sergio Mattarella gave Prime Minister Giuseppe Conte a fresh mandate to form this new coalition government.

The new government will immediately face tough challenges, including keeping the budget deficit below the 3% of GDP in 2020, economic stagnation, and a permanently rising debt stock. Time will prove if the coalition government can put aside their differences and solve these issues jointly or if it will expose the larger differences between the parties.

New data showed that the German economy is getting closer to being in a recession. The German Ifo institute&#39;s business climate index fell to its lowest level since August 2012. The institute&#39;s economist stated that he is expecting stagnation, at best, for Q3. While the auto industry is recovering, the engineering, chemicals, and electric sectors have declined sharply. The country&#39;s statistics office also reported that the economy contracted 0.1% in the previous quarter ended June. Exports fell much quicker than imports, and investments within construction has declined as well.

Greece&#39;s government announced that it will fully lift capital controls on September 1st, which brings an end to four years of restrictions on transfers abroad by companies and individuals.

**Asian Markets**

 Stocks were mixed in the largest Asian markets as the Japanese Nikkei 225 was almost unchanged, while the Shanghai Composite index declined 0.4% and the large-cap CSI 300 index shed 0.6%.

Statistics in Japan show that the unemployment rate dropped to 2.2% in July which is a 27-year low. Japanese core inflation stayed at 0.7% in July, which is well below the 2% target of the BoJ.

On Wednesday, the U.S. trade representative affirmed President Trump&#39;s plans to impose an additional 5% tariff on $300 billion worth of Chinese imports starting on September 1 and on December 15. The latest increase means that the U.S. will start levying a 15% tariff in September on a range of consumer goods imported from China, including footwear, flat-panel TVs, and smartwatches, followed by a 15% tariff in December on the remainder of the targeted list, including cellphones, laptops, toys, and clothes.

August 26 – August 30

**Market themes and portfolio summary for August 2019**

August was a particularly volatile month driven by sudden geopoliticical shocks and exacerbated by low trading volumes. Illustrated by numbers, the VIX, the CBOE Volatility Index, touched an intraday high of 24.8 on the 5th of August, up from 12 just five trading days before. Geopolitical headlines included additional tit-for-tat moves between the US and China, an ongoing protest in Hong Kong and a push for Brexit. What is more, the US yield curve, the spread between the 2 and 10-year Treasury yield, just inverted for the first time since the GFC, spooking recessionary fears. Contrary to market sentiment, we continued to see satisfactory earnings and macro data that reinforce our belief that the economic expansion will carry on, albeit at a slower pace. Therefore, we maintain our positive outlook and view current valuations as good entry points.

In terms of our monthly performance, we managed to outperform the S&amp;P500 despite all the volatility. While many of our stocks weighed on performance, profits from SolarEdge and TAL Education Group more than off-set those losses.

**US**

At the highly anticipated Jackson Hole meeting, where central bankers and economists gathered to discuss the global economy, Jerome Powell said that the U.S. economy is in a &quot;favorable place&quot; and the Federal Reserve will &quot;act as appropriate&quot; to keep the current economic expansion on track. He also noted that &quot;business investment and manufacturing have weakened, but solid job growth and rising wages have been driving robust consumption and supporting moderate overall growth.&quot;

In line with analyst expectations, the US economy grew by an annualized 2 percent in the second quarter of 2019, while core inflation edged up to 2.2 percent in July 2019. However, the University of Michigan&#39;s consumer sentiment fell to 89.8 in August from 98.4 in the previous month and well below market consensus of 97.2.

For Q2 2019 (with 99% of the companies in the S&amp;P 500 reporting actual results), we saw a -0.4% decline in blended earnings for the S&amp;P 500. The second quarter marked the first time that the index has reported two straight quarters of year-over-year declines in earnings since Q1 2016 and Q2 2016. On the positive side, 75% of S&amp;P 500 companies have reported a positive EPS surprise and 56% of companies have reported a positive revenue surprise.

The trade war suddenly escalated in early August when President Trump announced on Twitter that additional 10% tariff will be levied on the &quot;remaining $300 billion of goods&quot;. In response, the central bank of China let the Renminbi depreciate past 7 CNY/USD, the key threshold that was maintained since 2008. On 23rd August, Chinese Ministry of Finance announced new rounds of tariffs on $75 billion worth of U.S. goods. However, tensions receded late August after the parties agreed to restart negotiations.

**EUROPE**

The Eurozone quarterly economic growth was confirmed at 0.2 percent in the second quarter of 2019, compared to a 0.4 percent expansion in the previous period. In the meantime, the German economy contracted a seasonally-adjusted 0.1 percent on quarter in the three months to June 2019.

In an attempt to take the UK out of the EU, Boris Johnson announced he would be suspending Parliament for five weeks over September and October. If so, this could prevent any moves in the Commons House to stop a no deal.

In terms of monetary policy, Mario Draghi&#39;s successor, Christine Lagarde, made her first public comments about the ECB. She believes that ECB&#39;s latest actions are &quot;correct&quot;, implying a continuation of past monetary policy going forward.

**China**

Despite the ongoing trade war, China&#39;s trade surplus came in at USD 44.61 billion in July compared to analyst expectations of USD 40 billion and last year&#39;s USD 27.49 billion.

What started earlier this year as an extradition bill in Hong Kong, now morphed into a full-blown protest, bringing millions of Hong Kong people on the streets. In trying to crack down the demonstration, the Chinese government used the Hong Kong police, shut down the Hong Kong airport at a point and threatened to invade the city with the Chinese army. The riot still has not abated as of end of August.

**\*\*\*Disclaimers\*\*\***
 
**Investing involves risks, including possible loss of principal. Past performance is no guarantee of future results.**
 
_The strategies and companies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security. This material is not intended to be relied upon as a forecast, research or investment advice. There is no guarantee that any strategies discussed will be effective._
 
_This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice._
 
_This material contains general information only and does not take into account an individual&#39;s financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision._
 
_©2019 MFC Equity. All rights reserved._

August 2019

**Weekly Market Commentary (August 19 – August 23)**

**Global Market Highlights**

- **Stocks decline on new escalation in trade dispute**

- **China announces new tariffs and Trump retaliates**

- **Yield curve inverted again**

- **Italian government bonds rally after the Prime Minister resigns**

- **Recession in Germany is closer than one might think**



**US Markets**

US equities suffered their fourth consecutive weekly loss as an escalation in the US-China trade conflict undermined optimism over retail sales and FED policy. As earnings and revenue beats from companies such as Target, Lowe&#39;s, and Home Depot pushed consumer discretionary shares higher to outperform the broader market, long-term bond yields supported the utilities and real estate sectors.

On Monday, the White House announced that it is extending the reprieve for 90 days on a general ban on US firms doing business with Huawei. The United States had restricted the sale of US semiconductors and other products to Huawei, while many rural cell phone carriers rely on the Chinese giant&#39;s equipment.

Sentiment was further supported by hopes for additional stimulus from the world&#39;s central banks. Expectations have risen that the ECB will soon resume quantitative easing, as well as reports surfaced that the German government would turn to deficit spending to speed up its economy. On Wednesday, equities closed higher after the Federal Reserve signaled that they want to remain flexible in responding to economic data.

During the economic symposium in Jackson Hole, Jerome Powell pledged to act as appropriate to head off a recession, but also highlighted that the economy is close to both goals of low unemployment and stable inflation.

The week brought increased tension between China and the US as new Chinese tariffs were announced on US goods. China will impose new tariffs on $75 billion worth of US imports, including a 25% levy on american cars (which will have negative implications on European carmakers BMW and Mercedes-Benz).

On Friday, Donald Trump responded to the new Chinese tariffs by ordering US companies to look for a new alternative to China.  It is still unclear how this decision could be enforced. Some economic data also moved markets this week, as new home sales declined 12.8% MoM in July to an annual rate of 635,000 units which was below the anticipated 647,000 units. The median home price was down 4.5% at $312,800.

By the end of the week, the major US indices were in the red as the S&amp;P 500 index declined by 1.44%, while the Dow Jones Industrial Average shed 0.99% and the Nasdaq Composite index lost 1.83%.

**European Markets**

Most of the major European markets rose, but remained under pressure after the fresh round of US and China tariff threats. The Stoxx 600 index rose 0.47%, the export-heavy DAX 30 increased by 0.42% and the Italian FTSE MIB edged 0.74% higher. The UK&#39;s FTSE 100 index lost 0.31%.

Italian government bonds rallied after Prime Minister Giuseppe Conte resigned, accusing Matteo Salvini of putting his own political ambitions ahead of Italy&#39;s needs in calling for a snap election. The yield on the 10-year bond fell to 1.3%, which is a 3-year low. The Prime Minister&#39;s resignation puts an end to the unlikely alliance forged between the anti-establishment Five Star Movement and the anti-EU, anti-immigration League after national elections 15 months ago. There are two likely events that could heat up the situation in Italy. One is that Italy will have a new election and the other is that the Five Star Movement will form a coalition with its long-time opponent, the center-left Democratic Party. Such an alliance would be more market-friendly, but significant fiscal challenges would still remain. President Sergio Mattarella has given the two parties until Tuesday to come up with an agreement.

Signs that Germany is entering a recession piled up during the week. The IHS PMI showed that orders at factories and services companies dropped at the fastest pace in six years and the outlook is still negative for the next 12 months. The Bundesbank also signaled that the country could fall into a recession as the economy has contracted 0.1% for the previous quarter. The central bank also stated that the downturn in industry is at the center of its worries about the economy. In June, industrial output was 5.2% lower compared to a year ago.

The British pound gained some ground against the USD but remained under pressure after hitting two-year lows earlier in the month. UK Prime Minister Boris Johnson held meetings with French President Emmanuel Macron and German Chancellor Angela Merkel, which increased hopes that a Brexit deal could still be within reach. Macron said, however, that there is little chance that the European Union will substantially renegotiate the withdrawal agreement, notably the largest point of contention—the so-called Irish Backstop, designed to preserve an open border between Northern Ireland and the Republic of Ireland.

**Asian Markets**

Major equities in Asia gained as the Japanese Nikkei 225 index increased by 1.4%, while the Chinese benchmark Shanghai Composite Index added 2.6% and the large-cap CSI 300 index rose 3%.

Second-quarter gross domestic product was revised upward from the first estimate, increasing 1.8% at an annualized pace in the June quarter. Despite recording three consecutive quarters of expansion, slowing global demand is taking a toll on Japan&#39;s economy. The trade deficit expanded to ¥127 billion at the end of July from ¥34 billion in June, and manufacturing activity contracted for a fourth straight month. Exports declined for an eighth consecutive month as rising shipments of aircraft-related equipment to the U.S. and ships to Europe were offset by weaker exports of chipmaking equipment and auto parts to Asia. Shipments to China, Japan&#39;s largest trading partner, fell 9.3%.

August 19–August 23


**Weekly Market Commentary (August 12 – August 16)**

**Global Market Highlights**

- **Stocks continued to fall due to ongoing trade worries**

- **The 2-10 Treasury yield curve inverted for the first time in more than a decade**

- **Eurozone economies had a bad quarter in Q2 with close to no growth**

- **Chinese equities appreciated after the government plans to boost consumption**



**US markets**

US equities fell for another week as trade worries and economic growth concerns weighed on investor sentiment. Wednesday proves to be the worst day of the week as declines peaked, while the typically defensive consumer staples and utility sectors performed best within the S&amp;P 500 index as earnings and revenue estimates were beaten. Energy stocks underperformed the major index as crude oil prices surrendered their Tuesday gains.

The largest negative factor this week came from the bond markets as the yield curve of the 2-year treasury and the yield on the 10-year bond inverted signaling that a recession might be due in the next two years. The inversion on Wednesday caused the markets to decline as this macroeconomic signal has not been visible in more than a decade.

Short-lived inversions have not always been followed by a recession, but in the past 50 years, on average, it took two years for a recession to follow this inversion. By Thursday, the yield curve had resumed a slightly positive slope.

Of course, analysts have been stating that the inversion has become a less reliable way to indicate a recession. One of the factors is that the bond market consequences of large central bank holdings of government debt make yield curve inversions a less reliable indicator of recessions. In addition, past inversions have typically resulted from short-term rates rising faster than long-term rates, which has restrained growth in two ways; Higher borrowing rates have reduced loan demand and the flatter yield spread has squeezed lending margins, reducing the supply of credit. In recent months, both the 2- and 10-year yields have been falling.

Trade worries, which is an ongoing weight on the shoulders of the markets, also loomed large over investor sentiment. On Tuesday, equities rallied as Donald Trump announced that some of the 10% tariffs set to be imposed on Chinese goods on September 1st would be delayed until mid-December so as not to hurt the holiday shopping season, which also shows that US consumers are bearing part of that burden. On Thursday, the Chinese Foreign Ministry spokesperson stated that China hoped to meet the US halfway on trade issues.

Traders could trade on economic data as well this week as housing starts in July fel 4% MoM  reaching an annual pace of 1,191,000 units, which was below the 1,256,000 analysts&#39; estimates. On the other hand, building permits, one of the leading indicators of future construction, jumped 8,4% MoM to an annual rate of 1,336,000 exceeding the expectations of a 1,270,000 pace. The preliminary University of Michigan Consumer Sentiment Index in August disappointed the market as it dropped to 92.1 points from July&#39;s 98.4 points and was way below the expected 97 points.

Treasuries were mixed, as the yield on the 2-year note ticked 2 basis points lower to 1.48%, while the yield on the 10-year note advanced 2 bps to 1.55%, and the 30-year bond rate rose 3 bps to 2.01%.

Major US equity indices ended lower for the week as the S&amp;P 500 index dropped 1.03% and the Dow Jones Industrial average shed 1.53%. The Nasdaq Composite index declined by 0.79%.

**European Markets**

Equity markets in Europe were also under pressure from fresh US-China trade tensions and growing signs of recession. The European Stoxx 600 index lost 0.5%, while the UK&#39;s FTSE 100 dropped 1.8%. The export-heavy German DAX 30 shed 1.3% by the end of the week.

The Eurozone economy has come to the point where it is barely growing. According to Eurostat,the eurozone economy barely grew in Q2 of 2019, expanding just 0.2% as the economies within the bloc has been slowing. Germany, the region&#39;s largest economy, shrank by 0.1% in Q2. The GDP flash estimates numbers, including the YoY growth of 1.1% from Q2 of 2019, were in line with forecasts. Spain&#39;s economy grew 0.5% during the quarter, while France&#39;s expanded 0.2%. Italy&#39;s growth was flat.

Trade between the countries of the bloc fell in June at the fastest pace in more than six years as the US-China trade war began to hit European exports. The value of intra-eurozone trade dropped 6.6% in June compared with the same month last year. Eurozone exports to the rest of the world fell 4.7%, and European exports to China contracted 3.4% for the same period.



**Asian Markets**

Major Asian equity markets were mixed during the week as the Japanese Nikkei 225 fell 1.3%, and the Chinese Shanghai Composite index increased by 1.77%. The large-cap CSI 300 index rose 2.11% after news that Donald Trump would delay tariffs until mid-December.

The Japanese 10-year bond yield dropped below the central bank&#39;s targeted range of plus-or-minus 0.20%, as it dropped all the way to -0.23%. This caused speculation on when the BoJ will step in and how it would react so that it would not lose credibility. Japanese holdings of US Treasuries by the end of June jumped to the highest level in more than two years. The stake stands at $1.12 trillion  which is about 17% of total outstanding Treasuries.  China had been the largest holder of US Treasuries, but it started to reduce its positions in the first half of 2019.

Chinese stocks showed a nice gain by the end of the week as Beijing pledged to roll out measures to boost disposable incomes for the next two years to offset the slowing economy. As disposable income rises, so does private consumption which will speed up economic growth. Some solid equity earnings reports also boosted sentiment as well as the announcement of delayed tariffs by the United States.



**Exclusive**

It has been a devastating week for Argentina&#39;s investors as the local index, the Merval, lost 48% of its value in US dollar terms in just one trading session. Credit Default Swaps showed that traders are pricing in an 80% chance that Argentina will suspend debt payments in the next five years. So why did all this happen?

The Frente de Todos coalition presidential candidate Alberto Fernández and his running mate, former Argentine president Cristina Fernández de Kirchner won the primary round of the election with 48% of the vote, making him the overwhelming favorite to win the presidential election later in the Fall. Current President, Mauricio Macri, received 32% of the votes, having angered voters with austerity measures that have led to a deep recession and soaring inflation.

As the actual elections are nearing (October 27), it will be interesting to see how the current president will campaign in order to win over more of the voters. Equity and bond markets will be volatile as uncertainty rises.

August 12–August 16


**Weekly Market Commentary (August 05- August 09)**

**Global Market Highlights**
-** Deeper trade worries send stocks falling**
-** China devalued its currency, which causes a market crash**
-** By midweek, pause in trade battle calms markets**
-** Industrial output in Germany sinks**
-** The British economy contracts in Q2**
-** Japanese real wages fall in June**

**US Markets**
Equity markets in the US were lower after a very volatile week driven by trade. The major indexes suffered their worst day of the year on Monday after China devalued its currency and as the VIX volatility index hit its highest level since late 2018. After midweek, the indices recovered their losses, but remained volatile for the rest of the week. Energy shares performed the worst among the S&amp;P 500 components as domestic oil prices dropped following a surprise rise in US oil inventories.

The year&#39;s worst drop in stock prices occurred on Monday driven by a couple of factors, but the primary factor contributing to the fall in equity prices was China&#39;s decision to let the yuan depreciate below the level of 7.0 per US dollar, which serves as a symbolic threshold that Chinese officials have avoided breaching over the past 10 years. This move got investors worried as this move could have devolved the trade war into a currency war. After speculation, Chinese officials promised that they will not engage in competitive devaluation and this move served as a retaliatory step in response to the White House&#39;s announcement of new tariffs on Chinese goods. Another retaliatory move was that China halted all purchases of US agricultural products, which will definitely hurt the US economy.

The United States did not leave it at that and on Monday, the White House labeled China as a currency manipulator but this is symply symbolic as China intervenes daily in the value of its currency. Later on, investors were relieved that the trade battle seemed to come to a halt once Chinese officials stopped the drop of the yuan at circa 7.05 per US dollar.  On Tuesday, stocks recovered losses and rallied. Further news on the rise of Chinese exports continued to calm investors and stabilize markets.

Friday brought further volatility to the markets when Donald Trump told reporters that he is not willing to make a deal with China, even though he hinted that the possibility of a new round of tariffs in September might be canceled. The President also noted that the US was cutting off ties with Huawei, which weighed on technology stocks. By the end of the trading session on Friday, stocks recovered most of the losses.

Economic calendar for the week was light as labor market signals remained strong as June job openings surprised on the upside and as weekly jobless claims fell more than expected. Core producer prices had declined 0.1% in July, which marks the first decline since 2017. During the week, futures markets priced in a roughly 88% chance for at least two more 25 basis point rate cuts until the end of the year.

Treasuries continued to rally as investors fled to safe-haven assets. The yield on the 10-year bond declined by 8 bps to 1.66% and the 30-year bond dropped 9 bps to 2.17%. As 25% of the global bond market is yielding a negative return there is fear that the asset thought the safest, US treasuries, could reach zero or a negative yield as the global economy slows and tensions rise.
Major US indices started the week as the worst day so far this year, but by the end of the week the S&amp;P 500 dropped only by 0.46%, while the Dow Jones Industrial average fell 0.66% and the Nasdaq Composite Index lost 0.56%.

**European Markets**
Equity markets in Europe finished the week lower as well as volatility was higher. The trading pattern followed global markets as stocks declined on Monday on China&#39;s currency devaluation, but later recovered some of the losses. Major European indices declined substantially as the STOXX 600 index fell 1.74%, the German DAX 30 declined by 1.50% and the UK&#39;s FTSE 100 dropped by 2.07%.

Markets in Italy declined more than the European benchmarks as selling pressure came at the end of the week following news that Matteo Salvini had labeled the current coalition government untenable and called for snap elections. This move increased political uncertainty and made late-October elections likely.
Economic data from Germany further disappointed investors as industrial output decreased 1.50% in June, which was a much larger drop than estimated. The decline increased fears that the trade war between China and the US would drive Germany&#39;s economy into a recession.  German government bond yields declined further into negative territory. All maturity bond yields are in the negative.

More economic bad news followed in Europe as the UK GDP declined by 0.2% in Q2 which is below consensus. The contraction was a first in seven years. The primary factor contributing to the decline was a slump in manufacturing. The British pound fell sharply against the euro and US dollar following the report.

**Asian Markets**
Asian stocks shadowed global market returns as the Japanese Nikkei 225 index fell 1.9% and the Chinese Shanghai Composite index fell 3.2%. The large-cap CSI 300 index in China fell 3.0%.

In Japan, real wages declined for a sixth consecutive month in June which serves as a red flag for domestic consumption in front of the VAT increase scheduled for October.  Real wages fell 0.5% in June on an annual basis. Domestic consumption, which serves as a pillar for Japan&#39;s economy, rose 2.7% year-over-year in June which helps to offset the impact of declining exports.
In China, technology stocks were among the biggest losers as news that the White House was delaying a decision about granting licenses to US companies that applied to resume sales to Huawei emerged.

August 05- August 09

**Weekly Market Commentary (July 29-August 02)**

**Global Market Highlights**

- **US equities fell drastically after tariff announcement**

- **Federal Reserve press conference confused the markets**

- **Favorable US economic data could not stop downturn in the bond market**

- **GBP drops as the likelihood of No-Deal Brexit increases**

- **he BoJ did not change its monetary policy**

- **Markets in China fall after tariff announcement**



**US markets**

Stocks suffered their worst week since the beginning of the year as investor sentiment deteriorated after the Federal Reserve disappointed investors and as new tariffs on imports from China were announced. The VIX, or the volatility index, hit its highest level since May reaching 17.61 points.

Most of the investors were looking forward to the Fed press conference as anticipation for a rate cut was evident. The central bank announced a 25 basis point rate cut, which now means that the rate is within the range of 2.00% - 2.25%. Furthermore, the Federal Reserve announced that it would get rid of some of the upward pressure on long-term interest rates by beginning to reinvest all the coupon payments on its holdings of long-term government bonds.

After the press conference investors were confused as Jerome Powell stated that the central bankers were thinking of the cut as some sort of mid-cycle adjustment to the current monetary policy. According to the Fed chair, further cuts were still possible.

On Thursday, President Donald Trump announced that the US government will impose a new 10% tariff on all remaining imports from China that are not currently facing duties, which translates to roughly $300 billion worth of products. The tweet caught investors by surprise even though on Tuesday the President mentioned that the Chinese were not living up to their promise of purchasing more agricultural products; a commitment they made during the G-20 summit. Several analysts believe that the new consumer-oriented tariffs might have a more visible impact on the US economy than the previous $250 billion worth of products tariffed at the 25% rate.

The earnings seasoning is moving quickly as 167 S&amp;P 500 companies reported their Q2 earnings this week. Several economic data also shook the markets in the United States as nonfarm payrolls grew by 164,000 jobs in July, month-over-month, which was below the estimated 165,000 additional jobs. Furthermore, private sector payrolls increased by 148,000 additional jobs, but was not able to reach the 165,000 additional jobs expected by analysts. The unemployment rate remained at 3.7%, while average hourly earnings grew 0.3% in June, more than the 0.2% growth anticipated.

The trade balance showed a decrease in the deficit, as it narrowed to $55.2 billion, compared to estimates of $54.6 billion in June. Exports fell by 2.1% to $206.3 billion, while imports dropped 1.7% to $261.5 billion. The July University of Michigan Consumer Sentiment Index came in at 98.4 points, coming in below the estimated 98.5 points.

The technology-heavy Nasdaq Composite index fell the most, 3.92%,  while the S&amp;P 500 index shed 3.10% and the Dow Jones decreased by 2.60%. The small-cap Russell 2000 index stood out the most as it fell back into correction territory. The yield on the 2-year note ticked 1 basis point  lower to 1.71%, the yield on the 10-year note fell 4 bps to 1.85%, and the 30-year bond rate decreased 6 bps to 2.38%.

**European Markets**

Markets in Europe finished lower following Donald Trump&#39;s tweet expressing anxiousness about China&#39;s purchases of US agricultural products. Following that on Friday, markets fell even more after the United States announced new tariffs on Chinese products. The further escalation of the trade war between the United States and China reduced the prospects for stronger global economic growth.

The British pound fell further as a no-deal Brexit seems imminent, falling 4% in July. On Thursday, when the UK began the formal process of preparing to leave the EU, the pound skid to levels not seen since 2017. Boris Johnson announced that the government&#39;s assumption is not for an abrupt no-deal Brexit and the government&#39;s Brexit war cabinet met for the first time on Monday to prepare for all possible outcomes. According to data, there is a 65% chance for a no-deal Brexit as chances increased significantly since Johnson took office. If a no-deal Brexit really happens there is an increased chance for the BoE to cut interest rates later this year to prevent a slide in the British economy that could be an aftermath of Brexit.

Indexes in the region fell sharply as the European Stoxx 600 index shed 3.22% and the British FTSE 100 decreased by 1.88%. The export-heavy Dax 30 index depreciated 4.41% and the Italian FTSE MIB was 3.62% lower.

**Asian Markets**

Shares in Asia shadowed performance across the developed markets. The Nikkei 225 in Japan shed 2.6%, leaving it up 5.4% YTD.  In China, the benchmark Shanghai Composite Index decreased by 2.6%, the large-cap CSI 300 index sank 2.9%.

During the BoJ&#39;s meeting policy was unchanged as the members voted 7-2 in favor of leaving short-term rates at -.01% and long-term interest rates at around 0%. Other asset purchases will continue as the members voted unanimously.  Forward guidance shows that rates will be kept at extremely low levels for a longer time period, but at least until the spring of 2020. They also told investors that they will not hesitate to take additional easing measures if momentum toward achieving the inflation target slows.

The japanes Cabinet office decreased its GDP forecast to 0.9% for FY2019 from 1.3% due to the slowdown in external and private demand. This outlook is more optimistic than most private sector forecasts. On october 1st, the Japanese government is increasing its value-added tax from 8% to 10%. The increase has been postponed twice before on the assumption that it would cause a reduction in household consumption and cause an economic contraction like it did in 2014.

On Friday, China&#39;s foreign minister called the latest hike in tariffs not the right solution to trade frictions and explained that China will have to take countermeasures, but did not elaborate on specific details.

July 29-August 2

**Market themes and portfolio summary for July 2019**

Unlike most summers when investors can take some time-off and enjoy the holidays, investors were kept on their toes in July too. Namely, markets were keen to learn more about the US-China trade conflict and more importantly about central banks&#39; latest messaging. Unfortunately, what we warned about last month came true and investors indeed got disappointed about both the ECB&#39;s and Fed&#39;s not that dovish narrative. As such, equities – particularly growth stocks – took a hit in July and consequently our portfolio underperformed the S&amp;P500. The largest detractors were TAL Education Group, NetEase, Baozun and YY.com.

In terms of our outlook, we believe that the Fed&#39;s decision to cut 25 basis points only – instead of 50 bps that markets priced with 16% probability just before the FOMC meeting – is appropriate. The US GDP surprised to the upside again and other important macroeconomic indicators (e.g. labour market, corporate leverage, consumer spending, etc.) also look healthy, implying a low probability of recession. As a result, we maintain our pro-risk positioning going forward.

**Macroeconomic highlights:**

**US**

- According to Trading Economics, the US economy grew by an annualized 2.1 percent in the second quarter of 2019, beating market expectations of 1.8 percent. Household consumption and government spending increased at faster rates, while a slump in exports and a smaller inventory build made a negative contribution to growth.
- As of 26 July (with 44% of the companies in the S&amp;P 500 reporting actual results), 77% of S&amp;P 500 companies have reported a positive EPS surprise and 61% of companies have reported a positive revenue surprise for Q2 2019, according to FactSet.
- Probably as the most anticipated event in July, the Federal Reserve decided to cut interest rate for the first time since 2008. The 25 bps reduction brings the target benchmark rate to a range of 2% to 2.25%. The Fed reiterated that it will &quot;act as appropriate to sustain the expansion,&quot; adding new language in saying that this priority will be in focus as &quot;the committee contemplates the future path of the target range for the federal funds rate.&quot; In addition, the committee also announced to stop the balance sheet reduction program 2 months earlier than originally planned.

**EUROPE**

- According to Trading Economics, The European Union economy grew 0.2 percent on quarter in the three months to June 2019, easing from a 0.5 percent expansion in the previous period, a flash estimate showed. In addition, the Ifo Business Climate Index in Germany fell by 1.8 points from a month earlier to 95.7 in July 2019, the lowest level since April 2013 and below market expectations of 97.1.
- In light of these disappointing economic figures, expectations built that the ECB would come forward with further easing. However, the ECB kept key interest rates unchanged and only signalled further stimulus, disappointing market participants. During the press conference, Draghi clearly noted that the outlook for the economy, including inflation, is deteriorating.
- Christine Lagarde will leave the International Monetary Fund to head the European Central Bank (ECB) once Mario Draghi retires.
- Boris Johnson won in the UK Conservative Party and will become the next British Prime Minister. Johnson has vowed to take the UK out of the EU by 31st October 2019, the latest deadline the EU has given to UK.

**China**

- Macroeconomic data from China was better than expected in July. According to Trading Economics, the Chinese economy grew by a seasonally adjusted 1.6 percent on quarter in the three months to June 2019, accelerating from a 1.4 percent expansion in the previous period and beating market consensus of 1.5 percent. In addition, the Caixin China General Manufacturing PMI rose to 49.9 in July 2019 from 49.4 in the previous month and compared to market expectations of 49.6, still pointing to a slight deterioration in business conditions.
- On the trade front, Treasury Secretary Steven Mnuchin and Robert E. Lighthizer, the Trump administration&#39;s top trade negotiator, travelled to Shanghai in late July to continue negotiations. However, talks ended without progress, following which President Trump even attacked China in a Tweet, saying &quot;China is doing very badly, worst year in 27 - was supposed to start buying our agricultural product now - no signs that they are doing so. That is the problem with China, they just don&#39;t come through. Our Economy has become MUCH larger than the Chinese Economy is last 3 years....&quot;
- Having seen a rate cut from the Fed, China&#39;s central bank left its main policy rate on hold.

**Terms and abbreviations:**

- Bps – basis points, i.e. 0.01% equals to 1 bps
- ECB – European Central Bank
- Fed – Federal Reserve, the US Central Bank
- FOMC – Federal Open Market Committee, the decision-making committee of the Fed
- S&amp;P500 – the ~500 largest companies on the US stock exchange

**\*\*\*Disclaimers\*\*\***
 
**Investing involves risks, including possible loss of principal. Past performance is no guarantee of future results.**
 
_The strategies and companies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security. This material is not intended to be relied upon as a forecast, research or investment advice. There is no guarantee that any strategies discussed will be effective._
 
_This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice._
 
_This material contains general information only and does not take into account an individual&#39;s financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision._
 
_©2019 MFC Equity. All rights reserved._

July 2019

**Weekly Market Commentary (July 22- July 26)**

**Global Market Highlights**

- **US equity markets hit new highs**

- **As we finished the second week of corporate earnings, results were flat as expected, but more companies beat estimates than usual**

- **Homes sales fell despite lower mortgage rates**

- **ECB signaled that they are prepared to cut interest rates**

- **Hard-Brexit possibility is increasing as Boris Johnson finished his second week in office**

- **BoJ members in Japan reached a gridlock on lowering interest rates**

- **Talks resume between China and the USA, but little chance for breakthrough**



**US Markets**

Stocks in the United States rebounded from the losses endured in the previous week and lifted the S&amp;P 500 index and the tech-heavy Nasdaq Composite Index to record highs. Nasdaq was lifted by the 10% surge in Alphabet shares on Friday, which was due to the better-than-expected Q2 earnings and a substantial stock repurchase plan.

Alphabet, Google parent company,was not the only one to beat earnings and revenue estimates, as Twitter also achieved better results than expected. The great results helped the communication services sector outperform the other segments in the index. News that the merger between T-Mobile and Sprint was approved by the Justice Department also boosted the communication services sector.

Energy shares were left behind for the week as crude oil prices surrendered gains and as investors are focused on the foggy global economic outlook.

As the second week began of the Q2 earnings season, earnings remained flat, but more of the companies were able to beat estimates. By the end of the week 145 companies have reported their results. Besides Alphabet and Twitter, Boeing also reported its performance for the quarter after which the stock fell due to the larger loss than expected resulting from suspended deliveries of its 737 Max airliner.

Caterpillar also fell after the company reported disappointing earnings and outlook. Wall Street analysts expect overall earnings for the S&amp;P 500  to be flat compared to the year ago period, more companies than usual have been beating estimates and lifting market sentiment.

Even though earnings might be better than expected, traders continue to look beyond just the quarterly reports and focus on the broader economic and political environment. Equities reacted positively as the news emerged that the US trade envoy is going to Shanghai on Monday to continue trade talks with their Chinese counterparts. On the other hand, Friday brought a cloudy view on the trade talks as Larry Kudlow, White House economic advisor, told reporters that he would not expect any major breakthrough.

Investors could trade on economic data as well as the Q2 GDP expanded by 2.1%, which beat the forecast of a 1.8% growth. Personal consumption gained 4.3% during the quarter, which also beat the 4% estimate. Inflation data was also key this week, as the GDP Price Index came in at 2.4% above expectations of a 2% gain. The core PCE Index, which excludes food and energy, moved 1.8% higher which was below the 2% increase expected by analysts.

Treasuries were mixed for the week, as the yield on the 10-year bond was mostly flat at 2.07% and the yield on the 30-year bond lost 1 basis point, sliding to 2.59%. Over the course of the week, the S&amp;P 500 rose 1.65%, while the Dow Jones Industrial Average edged 0.14% higher. The Nasdaq Composite index closed the week 2.26% higher.

**European Markets**

Equity markets shadowed US markets as they rose thanks to the positive earnings reports and hints from the European Central bank that more monetary stimulus is on the way. The European Stoxx 600 index increased by 0.90%  as the German export-heavy Dax 30 closed 1.3% higher. The Italian FTSE MIB and the British FTSE 100 indexes were 0.91% and 0.54% higher respectively.

During the week, the euro fell compared to the dollar after the ECB kept interest rates unchanged, but signaled that it is prepared to cut short-term interest rates for the first time since early 2016. The signal was seen as a major shift in monetary policy which is aimed at protecting the European economy, which is deemed as getting worse and worse.

Short-term interest rates will be kept at -0.4% or lower through the first half of 2020. On the other hand, some investors were disappointed that the central bank did not give a timeline for resuming asset purchases.

The British pound fell against the US dollar after Boris Johnson took office as the new prime minister of the UK following his successful election. A hard-Brexit is even more likely now as Johsnon vowed to exclude everyone from his cabinet who is against the possibility of a no-deal Brexit. Meanwhile, the EU rejected the new prime minister&#39;s bid to reopen the Brexit talks. Johnson asked the EU to scrap the Irish backstop, which was agreed by Theresa May.

**Asian Markets**

Asian equity markets also closed the week on a positive note as the Japanese Nikkei 225 index gained 0.9% and the Chinese Shanghai Composite index added 0.7%. The large-cap CSI 300 index closed 1.3% higher.

As shifts in monetary policy has been the center of attention across the globe, investors are paying close attention to the upcoming policy meet of the bank of Japan which takes place on July 29-30. At the meeting, central bankers are expected to address the concerns and market impact of the expected Federal Reserve rate cut.

If the BoJ cuts rates while the Fed eases, the yen is likely to strengthen, putting downward pressure on inflation and simultaneously pinching the profits for Japan&#39;s exporters. On the other hand, if the Japanese central bank  decides to lower rates further into negative territory, it could put additional pressure on Japan&#39;s financial institutions&#39; profit margins.

According to consensus, the BoJ will not take any policy action but will only tweak its forward guidance vowing to keep rates ultra-low for a longer period of time. The central bank said that it is willing to continue its powerful monetary easing to achieve the 2% target inflation.

In China, stocks moved higher as trade talks between the US and China continued and their first face-to-face meeting will be held on Monday in Shanghai. Though the resumption of trade talks might be encouraging, most market participants see little chance of a breakthrough and there is no trade deal in sight as well. There are several key issues that have to be addressed and a lot of disagreements that have to be negotiated. A high risk of further tariffs, export controls or other forms of escalation in the trade battle still remains for the upcoming months.


July 22- July 26

**Weekly Market Commentary (July 15- July 19)**

**Global Market Highlights**

- **Q2 earnings season has begun and growth is expected to have stalled for the quarter**

- **50 bps rate cut is expected by the Federal Reserve**

- **The British pound continues to fall as a No-deal Brexit is more likely**

- **Exports in Japan continued to decline in June and data shows a six-month trade deficit**

**US Markets**

US equity markets have ended lower after a bumpy trading week as re-energized near-term rate cut expectations came up against a mixed bag of earnings and economic news, as well as elevated geopolitical tensions following Iran&#39;s seizure of a U.K. tanker. The DJIA performed the best this week as energy  and materials shares outperformed within the S&amp;P 500 index.

Energy stocks edged lower as domestic crude supplies fell less than analysts expected and reports also surfaced that Iran had approached the United States with an offer to allow greater monitoring of its nuclear program in exchange for allowing a resumption of Iranian oil exports.

Due to the larger plunge in Netflix shares, the communications services sector showed a weaker performance. The Q2 earnings season was started with a report from Citigroup on Monday as 56 other companies from the S&amp;P 500 reported their second quarter performance by the end of the week. Along with Netflix and CSX, Philip Morris International showed increased volatility, jumping 8% on better-than-expected earnings.

Analysts expect overall earnings for the S&amp;P 500 index to be flat for this quarter on an annual basis. Another market moving topic this week was the focus on whether the Federal Reserve will cut interest rates by 25 or 50 basis points at its meeting on July 30-31. Over the course of the week, central bankers offered a mixed signal over how aggressive the cut might be, while Jerome Powell pledge that they would act as appropriate amid increased uncertainties.

By the end of the trading session on Thursday, futures markets were pricing in a 71% chance for a 50 basis-point cut at the end of July.  This helped stocks rally. Traders were closely watching some of the major economic data as well this week, such as the preliminary University of Michigan Consumer Sentiment Index for July which increased to 98.4 points from the previous month&#39;s 98.2 points. Bloomberg estimated an increase to 98.8 points. Treasuries were lower as the benchmark 10-year note ticked 1 basis point higher to 2.05% and the 30-year bond closed at 2.57%.

By the end of the week, the Dollar Index gained 0.4% to 97.17 points. The indexes ended lower across the board as the DJIA decreased 0.7%, while the S&amp;P 500 index and the Nasdaq Composite Index lost 1.2%.

**European Markets**

European markets ended the week on a mixed note as fresh US-China trade tensions continued to deteriorate confidence in equities. Talks between the two nations stopped after Donald Trump threatened to impose tariffs on a further $325 billion of Chinese imports and talks about the future of Huawei Technologies were also paused.

Equity indexes by the end of the weekly session showed mixed results. The Stoxx Europe 600 index and FTSE 100 indexed managed to increase by 0.10% and 0.04% respectively. The export-heavy German Dax index closed 0.5% lower, while the Italian FTSE MIB index lost 2.4%.

The italian market came under pressure as worries rose that the eurosceptic coalition government could collapse and force new elections. The bond market responded by the yield on the 10-year bond rising to 1.624% after Deputy Prime Minister Matteo Salvini threatened to back out of the coalition government with the anti-establishment Five Star Movement. Salvini also came under pressure during the week over allegations that his party got illegal Russian funding for his successful EU election campaign.

The British pound continued to fall this week and reached a two-year low as concerns about a no-deal Brexit and the likelihood that Boris Johnson would be the next prime minister increased. The pound recouped some of the losses as the Uk Parliament voted to block the next prime minister from suspending parliament and forcing a no-deal Brexit. This move seems to undermine Boris Jonhson&#39;s entire hardline strategy. Johnson is expected to become prime minister by the end of next week.

**Asian Markets**

Asian equity markets shadowed their European and American counterparts and showed a decline in the major indexes. The benchmark Nikkei 225 index in Japan fell 219 points or 1% which puts the index at a gain of 7.3% for the year. Chinese equity indexes for the week were nearly unchanged as the Shanghai Composite Index shed 0.2% and the large-cap CSI 300 index ended unchanged.

Market moving economic data showed that Japanese exports fell for a seventh consecutive month in June. Exports dropped 6.7% in June compared to a year ago, although a decline in imports took the nation&#39;s trade balance back into surplus position. The primary factors contributing to the drop in trade figures have been the trade dispute between the US and China and a slowing global economic growth.

The Japanese economy has also been hurt by the disruption of regional supply chains and restrictions on the export of the shipments of chipmaking materials and equipment to South Korea.

The Japanese Finance Ministry also reported first-half exports to China which dropped 8.2% on an annual basis. The BoJ said that current economic data will determine whether the central bank will expand on its already aggressive stimulus measures. According to analysts, the BoJ might ease policy next month as global economic growth slows.

Chinese GDP growth was the slowest since it began compiling data in 1992. The GDP rose 6.2% in Q2 which is slower than Q1 6.4% pace, but data was in line with forecasts. This data can be considered as a direct impact of the trade war.

However, June monthly indicators signaled a stabilization, as retail sales, industrial output, and fixed-asset investment all rose more than expected. The second-quarter&#39;s growth was within Beijing&#39;s full-year target of 6.0% to 6.5% GDP growth. Until now, China&#39;s leadership has tolerated the slowing economy and lately stepped up targeted stimulus measures to drive growth, but further signs of economic weakness as the U.S.-China trade battle drags on could test officials&#39; resolve and lead to more forceful stimulus measures in the coming months.

July 15 - July 19

**Weekly Market Commentary (July 08- July 12)**

**Global Market Highlights**

- **Technology stocks were the best performers this week within the S&amp;P 500 helped by gains in chipmakers.**

- **Rate cut by the Federal Reserve seems almost certain.**

- **As we dive deeper into Q2 reporting season, more companies release their Q2 performance figures.**

- **US treasury yields rise as solid economic data surprised investors.**

- **European Commission cuts Eurozone growth and inflation forecasts.**



**US Markets**

Major US equity indexes were higher for the week as the large-cap S&amp;P 500 index and the Dow Jones index reached new all-time highs and crossed the symbolic threshold of 3,000 and 27,000 points  for the first time ever.  During the week, technology shares were among the best performers in the Standard &amp; Poors index, which was supported by chipmakers.

Energy shares were also positive for the week as US oil inventories started to decline which also supported crude oil prices. Volatility was evident during the week especially within the healthcare sector after the White House abandoned plans to stop the Medicaid and Medicare programs from providing rebates to pharmacy benefit managers, which act as a middleman between insurance plans and pharmaceutical companies.  The news sent health care provider stocks higher but weighed on drugmakers.

During the week, expectations that the Federal Reserve will cut interest rates dominated investors&#39; attention. Last week&#39;s strong jobs report weighed on investor sentiment, while most investors are still expecting a rate cut at the Fed&#39;s July 30-31 meeting. A 50-basis-point rate cut seemed increasingly unlikely given strong economic data, especially strong payrolls data. Federal funds futures were pricing in a 21% chance of a 50-basis-point rate cut by the end of the week.

Investors could also trade on economic data this week, as the producer price index increased by 0.1%, matching May&#39;s measure and beating estimates by Bloomberg which predicted no increase. The core inflation rate, which excludes energy and food, was up 0.3% during June, which was also above the estimates of a 0.2% increase. Weekly jobless claims fell back to five-decade lows, which makes the case for a rate cut weaker.

Solid economic data sent the yield on the benchmark 10-year Treasury note to its highest level in a month, reaching 2.12%.  In summary, US equity markets have been rallying this week as the Dow Jones delivered a 17.17% year-to-date, while the S&amp;P 500 and the Nasdaq Composite index reached 20.22% and 24.25% respectively.

**European Markets  **

Markets in the region fell across the board as trade tensions erupted between the United States and France as more signs of economic weakness prevailed across the region. By the end of the week, the Stoxx Europe 600  index fell 0.84% as the UK&#39;s FTSE 100 index and the German export-heavy Dax 30 index fell 0.62% and 1.95% respectively.  The CAC 40 index in France decreased by 0.37%.

France became the newest target of Donald Trump after the French Senate flouted US trade threats and went ahead to approve a digital tax on foreign technology corporations. The tax, which has been set at 3%, would apply to revenues earned in France by about 30 major companies, most of which are from the United States. As a response, the US started an investigation into France&#39;s planned tax, which could lead to the United States imposing tariffs or trade restrictions on French goods.

As new trade tensions and worsening economic data threatens the region, the European Commission cut its eurozone growth and inflation forecasts, underscoring that uncertainty about US trade policy posed a major threat to the European bloc. The commission expects inflation to rise less than expected, further from the ECB&#39;s target, and still be less than 2%. According to the commission&#39;s estimates the region&#39;s economic growth will slow to 1.2% this year from the 1.9% growth in 2018. It has also revised its 2020 growth estimates from 1.5% to 1.4%.

The European Central Bank seems determined to consider monetary easing measures. According the ECB commentary, heightened uncertainty over the eurozone economy means that the bank should be ready and prepared for new stimulus measures. Such potential measures could include the possibility of further extending and strengthening the governing council&#39;s forward guidance, resuming net asset purchases and decreasing policy rates.

News from Greece also dominated markets, as they defied the eurosceptic trend that has dominated several European elections and elected a new prime minister from the central-right, pro-European New Democracy Party. The incumbent, Kyriakos Mitsotakis, took office this week with a solid mandate to deliver on his business-friendly agenda. He vowed to cut taxes, attract investment and improve the job market. Due to this new election, several analysts upgraded their ratings on Greek debt on improving debt dynamics and expected compliance with fiscal targets.

**Asian Markets**

Markets in Asia fell across the board, as the Nikkei 225 in Japan fell by 0.2%, but is up 8.4% YTD. The benchmark Shanghai Composite index fell 2.67% and the large-cap CSI 300 index dipped by 2.16% by the end of the week.

In Japan, a 4% YoY increase in household spending seemed bullish for Japanese policymakers in May. Domestic demand increased at its quickest pace in four years and was much stronger than the median forecast of a 1.6% rise. On the other hand, government survey showed that household sentiment dipped to a three-year-low in June, which suggests a weakening consumer confidence in the coming 18 months.

Global chipmaker sales in 2019 have been revised 18% lower to $52.7 billion compared to a previous estimate of an 8% drop in sales.  As a result of the trade tensions and US sanctions against Huawei Technologies, this would mark the first annual decline in four years.  Semiconductor chip sales are expected to rebound 12% next year, driven by fifth-generation wireless technology. The Japanese government also tightened its controls on exports to South Korea, which could cause additional disruptions within the segment.

In China, export growth in June slowed 1.3% year-over-year, while imports fell 7.3% which is more than analysts expected. Furthermore, June imports from the US sank 31.4% on an annual basis and US-bound exports fell 7.8%.

Signs that the truce between the US and China might prove fragile has emerged on Thursday, as Donald Trump tweeted that China is not delivering on their part as they promised to increase their purchases of American farm products, which the White House claims China had agreed to do at the G-20 summit. Since differences between the US and China run deep and are not easily resolved, the risk of tariffs and other forms of retaliatory measures still exist and a potential further escalation is still high.

Weekly Market Commentary (July 08 - July 12)

**Market themes and portfolio summary for June 2019:**

June was again a remarkably eventful month with several impulse from both central bankers and politicians. First, the ECB surprised us with the possibility of additional stimulus, quickly followed by the Fed&#39;s dovish rhetoric that led to the expectation of a ~50 bps rate cut in July. Towards the end of the month, President Trump and Mr. Xi signalled that they are willing to restart trade talks, and indeed, they agreed to certain concessions at the G20 meeting, easing geopolitical concerns. Consequently, risky assets rebounded in June with our portfolio outperforming the S&amp;P500 by ~2%. Our biggest contributors were Baozun, Momo, SolarEdge Technologies and Facebook.

Assuming that the resumed trade talks will take a smaller toll on global growth than seemed in May, we are more optimistic about the outlook for stocks now. On the other side however, we become more concerned about the US monetary policy and investors&#39; reaction to that. Namely, central banks now become less pressured to cut rates with the positive turn in geopolitics, and consequently investors could get disappointed if the expected 50 bps rate cut does not come through in July.

**Macroeconomic highlights:**

**US**

We are celebrating the 10th anniversary of our current economic expansion this month, marking it the longest expansion that we have ever seen out of all the 34 cycles dating back to the 1850s. Notwithstanding these numbers, the U.S. Manufacturing Purchasing Managers&#39; Index fell by more than two-points to 50.5 in May, the lowest level since Sept. 2009, according to IHS Markit. New orders contracted for the first time since August 2009. In addition, the U.S. economy added just 75,000 non-farm payrolls in May, significantly below the expected 175,000 levl.

As expected, the Federal Reserve left its benchmark rate in a target range of 2.25% to 2.5%. More importantly though, they opened up the door for a rate cut in their statement: &quot;In light of these uncertainties [i.e. trade war] and muted inflation pressures, the Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective…&quot;.

According to FactSet, the estimated earnings decline for the S&amp;P 500 is -2.6% for Q2 2019. (As of 21 June) If -2.6% is the actual decline for the quarter, it will mark the first time the index has reported two straight quarters of year-over-year declines in earnings since Q1 2016 and Q2 2016. The forward 12-month P/E ratio for the S&amp;P 500 is 16.8. This P/E ratio is above the 5-year average (16.5) and above the 10-year average (14.8).

The G20 meeting also saw a favourable outcome from President Trump&#39;s and Xi&#39;s meeting: the US president agreed not to put the additional tariffs on China for the &quot;time being&quot; and that he softened his stance on Huawei. He will allow US companies to sell some equipment to Huawei, as long as it was &quot;no great national security problem&quot;.

**Europe**

The ECB maintained the negative deposit rate of -0.4%, while the interest rate forward guidance was extended by another half-year, now signalling no change in key interest rates until at least mid-2020. But most importantly, Mario Draghi said that a new round of easy money &quot;will be required&quot; if the economic situation in the euro zone doesn&#39;t improve.

Activity in Germany&#39;s export-dependent manufacturing sector contracted in June for the sixth time in a row, a survey showed on 1 July, as weaker demand weighed on new orders and led to a fall in employment. Even though IHS Markit&#39;s Purchasing Managers&#39; Index (PMI) for manufacturing, which accounts for about a fifth of the economy, rose to a four-month high of 45.0, it remained below the 50.0 mark separating growth from contraction.

British politics continues to be dominated by the race for the prime minister&#39;s seat. The polls and odds suggest that Boris Johnson will come out on top. Whoever succeeds, parliament is still likely to prevent a no deal Brexit, unless a general election or referendum takes place and provides a strong mandate from the population for such an outcome.

**China**

The trade war left its mark on the Chinese economy: China&#39;s manufacturing PMI stayed at 49.4 - a tenth below expectations with new export orders edging down 0.2pts to 46.3, the weakest since February. The non-manufacturing PMI slipped to 54.2 (54.3 expected) bringing the composite to 53.0 (vs. 53.3 expected). To counter balance this, China&#39;s central bank injected a total of 740 billion yuan (about 108 billion U.S. dollars) liquidity into the market via the medium-term lending facility (MLF).

**\*\*\*Disclaimers\*\*\***
 
**Investing involves risks, including possible loss of principal. Past performance is no guarantee of future results.**
 
_The strategies and companies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security. This material is not intended to be relied upon as a forecast, research or investment advice. There is no guarantee that any strategies discussed will be effective._
 
_This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice._
 
_This material contains general information only and does not take into account an individual&#39;s financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision._
 
_©2019 MFC Equity. All rights reserved._



June 2019

**Weekly Market Commentary (July 01- July 05)**

**Global Market Highlights**

- **The major indexes ended mixed after a holiday shortened week in the United States**

- **The trade war took a positive note as Donald Trump eased the ban on sales of semiconductor chips to Huawei Technologies Inc.**

- **US job reports showed strength which surprised investors**

- **Global government bonds hit new all time lows**

- **Q2 earnings season is approaching**



**US Markets**

The major US indexes ended mixed on Friday after a smaller pullback. The real estate segment outperformed the general markets as energy stocks declined after concerns on global growth weighed on the segment. Equities started off well on Monday as investors welcomed new progress in US-China trade negotiations at the G-20 summit last week.

The largest winners of the new talks were the semiconductor stocks which saw particularly strong gain after Donald Trump agreed to ease the ban on sales of chips to Huawei technologies, the Chinese telecommunications giant. Large-cap indexes also increased on Tuesday as the White House trade advisor, Peter Navarro, told reporters that talks with the Chinese negotiators are headed in a very good direction, but he also mentioned that it will take time if the two nations want to get this thing right.

The economic calendar this week was light, but investors were still able to welcome news that overall the economy is slowing, but surprises also moved markets. Nonfarm payrolls in June grew by 224,000 jobs versus the expected 160,000 additional jobs. Private sector payrolls, which excludes government hiring and firing, increased by 191,000 jobs compared to the forecasted gain of 150,000 new jobs.

The most gain was seen in professional and business services, in health care and in transportation as well as warehousing.  The unemployment rate ticked higher and reached 3.7% in June compared to 3.6% in May, where it was forecasted to remain as the labor force participation rate nudged higher. Average hourly earnings were up 0.2% as analysts expected a 0.3% increase.

The economic data showed that the economy might not be in as good of a shape to guarantee a rate cut by the Fed, which pushed equities lower. Long-term Treasury yields increased after the surprising jobs report, with the 10-year Treasury note rising 10 bps reaching 2.03%. The Dollar index added 0.5% for the week to reach 97.25 points as markets were higher for the week. The Dow Jones increased by 1.2%, while the S&amp;P 500 was up by 1.7% and the Nasdaq Composite index rose 1.9%.

This week, investors were rattled by the largest bankruptcy filing since 2014, when Weatherford International, the oil and gas services company, filed for bankruptcy on July 1.

**European Markets**

European equity markets finished lower for the week as European economic data showed mixed results and as geopolitical concerns remained elevated. The euro and British pound saw some pressure against the US dollar as the regional bond yields remained stable. In Germany, data continued to underscore the decline in the global economy and show the toll that the trade tension and slowing growth has on the export-driven economy.

Industrial orders in Germany fell across all sectors, falling 2.2% in May and dropping 8.6% year-to-date. Foreign contracts also declined, falling 4.3% as the demand from non-eurozone countries deteriorated. The German Purchasing Managers&#39; index showed that the manufacturing sector contracted for the sixth consecutive month. For Europe, the PMI showed that the metals and mining sectors have posted a sharp drop in output during June, contracting at the fastest rate since November 2012.

The German bond yield continued to fall to a new low, reaching -0.40% as prospects for a new eurozone stimulus drew investors to bonds and other safe-haven assets.  Bonds also sank in France, where the 10-year sovereign bond sank below zero, dropping to -0.1%.

The major indexes in the region rose as hopes increases that the ECB will supply fresh rounds of monetary stimulus to keep the region&#39;s slowing economies going. Bonds and equities rallied as IMF Managing Director Christine Lagarde was nominated to be the next ECB president. She is expected to take over from Mario Draghi once the Italian leaves in October. The STOXX 600 index gained 1.36%, while the export-heavy DAX 30 index gained 1.37% and the British FTSE 100 increased by 1.72%.

Turkish equities returned 3.3% measured by the BIST 100 index. Turkish assets, including the national currency ended higher as President Erdogan claimed that Donald Trump assured him during the G-20 summit that the United States will not hit Turkey  with sanctions for purchasing military hardware from Russia. Turkish inflation rate also dropped to 15.72% in June which is the lowest level in about one year, while in May it was 18.71%.

**Asian Markets**

Japanese equities rose for the week, as the Nikkei 225 gained 2.21% and the large-cap TOPIX index and the TOPIX small index also performed well. The benchmark Shanghai Composite index in China added 1.1% and the large-cap CSI 300 index increased by 1.8%.

At the conclusion of the G20 summit in Japan, Christine Lagarde, managing director of the IMF stated that even though the IMF expects global growth to marginally strengthen, the risks remain serious and she has also pointed out that tariffs that have already been implemented are holding back global growth.

The BoJ&#39;s favored sentiment barometer, the Tankan index, dropped in the last three month period to its lowest level in the past 3 years to +7 from +12.  The reason for the fall is the global tension and a falloff in demand from the Asia-Pacific region has severely deteriorated confidence across the region and across Japanese manufacturers. The only sector that rose in confidence was the services sector that grew by two points to +23. The Tankan index is based on a scale from +100 to -100 and a higher reading suggests a positive view of near-term economic conditions.

The restarted talks between the US and China brought new optimism to the markets, but neither country offered a timeline for future negotiations, which brings further uncertainty about the timing of a potential deal. An influential blog linked to the Chinese government reported that all US imposed tariffs must be removed before any new deal can be reached. Furthermore, Chinese officials have stated that the collapse of trade negotiations in May was due to Washington&#39;s refusal to scrap all tariffs and other burdensome demands.

July 01 - July 05

**Weekly Market Commentary (June 24- June 28)**

**Global Market Highlights**

- US economic data mostly missed expectations

- Donald Trump continued to criticize the Fed for raising interest rates and being stubborn

- The German Bund hit a 10-year low as trade fears hurt market sentiment

- Italy still fighting EU policy on budget target

- Donald Trump and Xi Jinping agreed to start trade talks again


**US Markets**

The major US indexes retreated from recent highs. Technical traders on Wall Street are now mostly focused on whether equities will break the recent pattern of pulling back from new highs or not as the record established by the S&amp;P 500 during the previous week was the fourth such occasion in the past 17 months, with all occurring in a 3% range.

The week brought excitement in the M&amp;A segment as well as two major acquisition announcements were made. Eldorado Resorts reported that it is ready to acquire Caesars Entertainment in a $17 billion deal that will make the merged company the largest gaming enterprise in the United States.  The drugmaker, Abbvie, announced that it will acquire rival Allergan in a roughly $63 billion cash and stock deal.

During the week sentiment was dominated by geopolitical concerns as tensions with Iran sent crude prices to their highest level in months which also benefited equities in the energy sector.  On Tuesday, stocks retreated as the White House announced that a trade deal is not expected between the US and China during the G-20 summit in Tokyo. Furthermore, officials stated that the US is not ready to allow new concessions to China. Wednesday brought new information to the markets about US-China relations as Steven Mnuchin made remarks that negotiators were 90% of the way there in reaching a successful deal.

Other factors also influenced the markets, such as remarks from Federal Reserve officials, which proved less dovish than the market had hoped. Jerome Powell, the chairman of the Federal Reserve, also stated that the Fed should not overreact to changes in sentiment.

This week&#39;s economic data on average missed expectations. Manufacturing activity in Chicago, Kansas, and Dallas unexpectedly fell into contraction territory as well as durable goods orders dropped more than analysts expected. The Chicago PMI Index fell from 54.2 points in May to 49.7 points in June. The University of Michigan Consumer Sentiment index on the other hand, increased to 98.2 points from the 97.9 point preliminary figure, but was still below the 100 point level in May.

Other economic news included a 0.4% increase in personal spending which was below the 0.5% estimated increase. During May, the savings rate as a percentage of disposable income was 6.1%.  Personal income rose 0.5% in May which exceeded the 0.3% estimated gain.

Weak economic data and increasing geopolitical tensions sent the yield on the benchmark 10-year Treasury note to 2.01%. Investment-grade corporate bond spreads  widened as investors reacted to the comments by the Federal Reserve officials.

**European Markets**

Major European equity indexes edged higher amid hopes that the G-20 summit would ease geopolitical tensions. The pan-European Stoxx 600 index increased 0.03%, while the british FTSE 100 closed higher by 0.24% and the German exporter-heavy Dax 30 index increased by 0.48%.

As European economic data continued to disappoint traders in the region, the yield on the 10-year German Bund fell to -0.34%. The European Commission&#39;s economic sentiment indicator dropped to its lowest point in about 3 years in June as confidence fell in Germany and Italy. The drop was driven by a decrease in confidence in the industrial sector which has come under pressure from geopolitical tensions.

The budget standoff between Italy and the European Union has been prolonged again as Italy&#39;s government decided to delay setting a lower deficit target for 2020. The European Union&#39;s College of Commissioners has until next week to decide what they are going to do with Italy and they are also required to report to the eurozone finance ministers early July. From Italy&#39;s perspective, the Italian prime minister noted that they are having a constructive dialogue with the European Commission to avoid a disciplinary measure.



**Asian Markets**

Stocks in Asia were mostly mixed during the week as the Japanese Nikkei 225 index gained 0.08% and the benchmark Shanghai Composite Index declined 0.8% and the large-cap CSI 300 index shed 0.2%.

In Japan, core consumer inflation rate declined during May and factory manufacturing output is expected to fall during June. These indicators put pressure on the BoJ to extend its aggressive stimulus program, possibly as early as next month.

The core consumer price index rose 0.8% in May. The core-core CPI, which excludes both food and energy fluctuations, edged up 0.5% on an annual basis. The greatest challenge for the BoJ as of now is reaching the 2% inflation target. At the same time, slowing global growth and increasing geopolitical tensions threaten Japan&#39;s economic growth.

In China, the G-20 summit brought ease as reports showed that the US and China have agreed to a truce and they are back to the negotiating tables that would delay the next round of punitive tariffs on Chinese imports. Many analysts believe that there are signs for a breakthrough in global tensions, but on the other side bears believe that both sides will undergo a period of economic pain as they reconsider positions and only then there will be a real deal on the table.

June 24- June 28

**Weekly Market Commentary (June 17- June 21)**

Global Market Highlights

- The Federal Reserve's dovishness powers equity markets higher.

- Due to Middle Eastern tensions, oil rallies.

- Trade tensions take a positive turn.

- European bond yields slide on Draghi's promise to loosen policy.

- Manufacturing and services PMIs show continued weakness in the Eurozone.

- Johnson and Hunt will fight for the Prime Minister's office in the UK.

- Japanese economy still growing even though exports plunged in May.

US Markets

US equities finished with a roar on Friday as stocks rose to new highs after the Federal Reserve reinforced investors about an interest rate cut later this year. The most important part of Jerome Powell's press conference was that he did not include the word "patient" in his speech which made investors more bullish and he also said that the Fed "will act as appropriate to sustain the expansion" which means that they are willing to cut rates if need be. During this week's meeting there was not enough support from the bankers to cut interest rates.

The technology-heavy Nasdaq Composite index outperformed the broad market with its 3% gain while the S&P 500 appreciated by 2.20% and the Dow Jones Industrial Average gained 2.41%. Treasury yields reached new lows as the US 10 year treasury yield dropped below 2.0% for the first time since 2016. It ended the week at 2.059%. This drop in treasury yields made stocks that offered higher dividend yields more attractive.

As geopolitical tensions rise in the Middle East, crude oil prices have been having a blast as well as energy stocks have been driving larger gains. As news emerged that Iran shot down a US drone, WTI crude appreciated more than 5% on Thursday. The White House has been sending conflicting signals about a response to the attack, but on Friday Donald Trump announced that he had called off an attack against Iran.

As investors were getting worried about a lengthy trade war, this week brought a positive turn as President Trump announced that he had a good call with the Chinese President and that the two leaders would have an extended meeting during the G-20 conference which will be held at the end of June in Japan. Market participants are hoping that the renewed negotiations will help avoid tariffs on additional goods produced in China.

European Markets

European equity markets ended the week on a positive note as anticipation of more central bank stimulus measures arose. All of the major European indexes ended higher as Mario Draghi signaled that the ECB could offer further stimulus measures as early as July if regional growth continues to hamper. Draghi's comments came before the Federal Reserve announced that they are ready to cut interest rates if the US economy does not start to improve soon. The pan-European Stoxx 600 index was up by 1.57%, as the UK's FTSE 100 gained 0.84% and the German Dax 30 index appreciated by more than 2%.

The euro suffered a 1% drop compared to the US dollar during the week and following Mario Draghi's statement, the yield on the 10-year German government bond fell to a new all-time low of -0.315%, while the yield on the French 10-year bond hit 0%, which is its lowest level since inception. As usual, Donald Trump tweeted about Draghi and accused him of talking down the euro to make it easier for Europe to compete with the United States.

The Eurozone Composite Purchasing Managers' index rose to 52.1 points in June, up from 51.8 points in May, but still remained weak which could potentially bring more monetary easing. In France, business activity grew more than analysts expected in June and reached the fastest pace in seven months. Services and manufacturing activity also rose in Germany. Even though numbers show a slight growth, on average the region is sliding very close to stagnation and growth remains too dependent on the services sector, which largely reflects the strength of consumer demand and improving labor markets.

As the Bank of England holds short-term interest rates steady at 0.75% the British pound rose close to 1% compared to the US dollar. The BoE cut its growth forecast for Q2 to 0% from 2% as the economy declines and as the Brexit deadline has been extended to October.

There are two candidates left for the position of Prime Minister in the UK. Boris Johnson and Jeremy Hunt are left after another two rounds of voting. The two candidates will face a month long campaign before a final vote of 160,000 Conservative Party members takes place. Results should be available by July 22.

Asian Markets

In China stocks surged while equity markets in Japan posted a mixed performance. The Nikkei 225 index advanced 0.70% by the end of the week while the large-cap TOPIX and the TOPIX small index both posted weekly declines. In China, the Shanghai Composite Index gained 4.20% and the large-cap CSI 300 index appreciated by 4.90% as the week came to a close.

As investors expected, the Bank of Japan kept its monetary policy unchanged and maintained its current pace of asset purchases. Investors could trade on several Japanese macro data, such as that exports had declined 7.8% YoY in April, which makes it the sixth consecutive monthly decline. Exports to China declined by 10%, which is mostly due to the drop in shipments of chip-making equipment , which fell close to 28%. Exports to the Asian continent, which represents approximately half of the country's total, declined more than 12%. On the other hand, exports to the US rose more than 3% YoY in May thanks to the more than 10% growth in car shipments. Imports also fell 1.5% versus the previous year.

Equities rose in China due to the optimism that a meeting between Donald Trump and Xi Jinping will take place during the G-20 meeting which would lead both countries to continue trade talks which stopped last month. Even though some analysts believe that the two leaders will be able to reach some kind of deal, the prospects are not high and both countries are likely to endure a period of economic pain in order to reconsider a trade deal.

June 17- June 21

Weekly Market Commentary (June 10- June 14)

**Global Market Highlights**

- The energy sector has finished another volatile week.

- US treasuries were boosted by weak inflation data.

- Boris Johnson won the first round of the UK Conservative party's poll to replace Theresa May.

- Japanese economic growth revised higher.

- Bank of Japan is prepared for more economic stimulus.

- Chinese equities increased as stimulus hopes rise.

**US Markets**

US equity markets kicked off the week with strong performance as news arose between the US and Mexico to avert tariffs. The outperformance was halted later in the week, but all in all the Dow Jones Industrial average finished the week with a modest 0.41% gain while the S&P 500 increased by 0.47% over the course of the week. Information technology stocks were closely watched after last week's news that the government started an antitrust investigation against the largest IT companies in the US. On Monday, technology stocks posted a strong gain before flattening out as the week continued.

The increase in prices on Monday could have been attributable to a mergers and acquisitions tailwind early in the week after Salesforce announced that it would acquire data analytics provider Tableau Software. Through the deal, Salesforce will acquire Tableau Software for $15 billion in an all-stock deal. Another acquisition story also helped the markets. United Technologies said that they are buying Raytheon, a defense contractor, in another all-stock deal to create one of the largest aerospace giants with more than $70 billion in annual revenue which would make it the second largest aerospace and defense conglomerate behind Boeing.

This week showed an increased volatility in the energy sector as geopolitical tensions rose. The price of WTI crude oil started the day on Wednesday by plummeting 4% after a government report showed a large increase in US stockpiles for the second consecutive week. However, on Thursday, things changed for the better as WTI rose close to 5% after news that two oil tankers had been attacked in the Strait of Hormuz triggered a sharp rally in oil that helped to recover the losses incurred earlier in the week.

While geopolitical tensions increased after the incident and commodities did react to the news, equities did not show major concern about the uptick in geopolitical tensions. Of course, the lower volatility of the markets can be a sign that investors are still optimistic about an interest rate decrease by the Federal Reserve in the coming months.

Investors could also trade on macroeconomic data this week. The government data showed that the consumer price index for the month of May rose only 0.1% down from a 0.3% increase in the month of April. Slowing inflation could give the Federal Reserve more room to adjust monetary policy to current macroeconomic trends by cutting interest rates.

The weak inflation data pushed treasury yields lower as the yield on the 10 year treasury note fell below 2.10% on Friday. Treasury prices increased due to the rising geopolitical tensions in the Middle East and the ongoing uncertainty about the trade war between the United States and China. The geopolitical tensions encouraged investors to move to safe-haven assets.

**European Markets**

European equity markets also ended the week on a higher note, helped by the rise in oil prices after the incident in the Gulf of Oman, but were still under pressure from the ongoing trade war. The Stoxx Europe 600 gained 0.35% as the UK's FTSE 100 and the German DAX 30 gained 0.19% and 0.42% respectively. The Italian FTSE MIB index rallied 1.24% for the week by the end of the session on Friday.

The week showed some new opportunities for trade relationships between the US and the EU as they brokered a beef import deal which could bring an end to a decade long dispute over a restriction of beef imports into the European markets. This deal is set to improve trade relations with the US and may increase the likelihood that car tariffs, that would hurt EU car makers, could be avoided.

This new trade agreement was great news for US farmers as they now have access to 80% of the annual EU quota on hormone-free beef over seven years. Of course, the EU had to persuade Australia, Argentina, and Uruguay to give up chunks of the quota. This agreement helped to de-escalate tensions that had threatened to become an all-out trade war.

As the search for a new Prime Minister is ongoing in the UK, Boris Johnson, former foreign secretary and London Mayor, finished ahead of his rivals in the first round of the Conservative Party's voting to choose a new leader to replace the outgoing Prime Minister, Theresa May. Johnson is a supporter of Brexit and pledged to take the UK out of the EU by October 31st. He has won 114 votes out of the 313 votes as his closest competitor, Jeremy Hunt, only had 42 votes. Before the final two candidates are announced next week, two more ballots could take place.

It was not a great week for the British pound as it lost close to 1% against the US dollar amid the political uncertainty and on reports that the British economy contracted in April, during which it had the largest decline in car production ever. UK car production in April was cut in half due to factory closures due to Brexit.

**Asian Markets**

Asian equity markets showed solid gains by the end of the week as the Nikkei 225 in Japan advanced 1.1% and the benchmark Shanghai Composite index ended up 1.9% while the large-cap CSI 300 index added 2.5%

In Japan, market participants could trade on reports that for the quarter ended in March, the country's annualized GDP growth rate was increased to 2.2% from the 2.1% estimate a month ago. Japan is largely reliant on exports and is being choked by decreasing global demand for its goods and services due to the US-China trade dispute so the increase in GDP measures could be temporary. As foreign demand continues to weaken, corporate and consumer sentiment could be dented and domestic spending will decrease.

That said, the governor of the Bank of Japan stated that the central bank can and will provide more stimulus for the economy if necessary and if the momentum to achieve its 2% inflation goal wanes. The governor also said that he is ready to ease monetary policy, but as of now he does not believe that it is necessary right now given Japan's healthy economy.

Chinese stocks showed an uptick as investors became more confident that Beijing would step up stimulus measures to protect the global economy from the impact of US tariffs. According to the Chinese statistics bureau the country's slowdown is showing as industrial output in May rose 5% on an annual basis which is the weakest pace since 2002 while fixed-asset investment increased 5.6% year-to-date. On a positive note, retail sales rose 8.6% in the previous month which were likely driven by a longer May Day holiday that helped domestic consumer spending.

June 10- June 14

Global Market Highlights

- Jerome Powell hinted a potential rate cut in the near future and suggested that the FED will help insulate the economy from tariffs.

- US labor market cooled in May showing a slowing economy.

- ECB left rates unchanged.

- China increased tariff retaliatory measures.

US Markets

During the week equities bounced back from the losses incurred in May as the market is optimistic about a potential rate cut in the near future. It was a great week for the markets as the S&P 500 index had its best one of the year and appreciated close to 5% while the DJIA escaped its longest weekly losing streak since 2011. All S&P 500 sectors closed in the green led by the materials segment. Continued weakness in oil prices have weighed down on energy stocks and as the markets were booming typically defensive sectors such as real estate and utilities have underperformed this week. Although markets were doing great, technology oriented companies dropped sharply following news that antitrust officials were preparing investigations into Apple, Amazon, Facebook and Alphabet. Most of the week's gains came Tuesday after FED chairman Jerome Powell pledged that policymakers were paying close attention to the impact of trade tensions on the economy and act in a necessary manner to uphold the economic expansion. After the speech, the markets were pricing in a likelihood of a rate cut after the next meeting at the end of July.

The previously mentioned tariffs on Mexico will not go into effect after all as the Mexican government and the White House is working together to improve border control and the Mexican side is very serious about ending illegal immigration so that a good relationship can be upheld between the bordering nations.

During the week, the markets could trade on labor market data which cooled during May. On Wednesday, the ADP reported that private sector payrolls have improved by only 27,000 in May which is considered as the smallest monthly amount in more than 9 years. On Friday, the Labor Department also reported that payrolls have expanded by only 75,000 last month which is the weakest increase since February. Unemployment held stable at 3.6% which is at a five-decade low, but this was because labor force participation rate also dropped to its lowest level in 8 months. The slowing labor data further proves a slowing economy, but after the release markets were positive because they were pricing in a 98% probability of a rate cut in 2019 with an almost 90% chance of a cut by the end of July. The labor data was not as kind to the bond markets as it was to equities as the yield on the benchmark 10-year Treasury note dropped to a 20-month low on Friday closing at 2.08%. In the investment grade corporate bond market sentiment remained bullish as it was helped by the gains in the equity markets.

European Markets

Equity markets also rose in Europe as investors began pricing in expectations for rate cuts as both the FED and the ECB signaled that they could intervene if trade tensions hinder the global economy. The Stoxx Europe 600 index and the FTSE 100 index both gained more than 2% during the week as the DAX 30 index in Germany and Italy's FTSE MIB index appreciated by almost 3%. This week investors listened to Mario Draghi's comments about ECB outlook and monetary policy expectations. He also mentioned that the bank would delay the timing of an interest rate increase by at least 6 months and offered terms for a new series of quarterly TLTROs which is intended as a stimulant to the region's financial systems by providing cheap loans to banks.

Furthermore, Draghi said that the European Central Bank will keep rates steady until mid 2020 as policymakers address concerns about weaker inflation. He further mentioned that the bank is ready to use all tools necessary in case the slowdown in export-driven manufacturing starts to affect other parts of the economy. The chairman's words suggested that the central bank will wait until economic consequences of trade wars become obvious before responding with a monetary policy move.

The budget tension between the EU and Italy has been going on for months now as Italy has surpassed EU debt requirements and has a debt to GDP ratio of 133.7% instead of the allowed 60%. This week, the European Commission recommended legal action against Italy after it broke the EU's debt rules last year and it is likely to do so in 2019 and 2020. The European Council will consider whether it should start an excessive deficit procedure against the Italian government, which if approved could cost billions of euros in fines. Further tension could arise later this year as Italy will present its 2020 budget. The Italian government is planning to cut taxes and the EU will request fiscal consolidation for the Italian state to stay compliant with fiscal limits. If Italy misses budget targets, it could trigger negative credit rating actions as well as a widening of sovereign credit spreads later this year.

In Germany, weak exports are taking a toll on the German economy and Bundesbank cut its economic output forecast to 0.6%, a decrease from 1.6% in December. The bank also lowered forecasts for 2020 and the following year. This week's economic data showed that imports fell 1.3% in April while exports slumped 3.7% for the same period. Industrial production fell more than expected, as it dropped by 1.9% in April from March.

After Theresa May's departure from the prime minister's office on Friday, she signaled that she would leave the matter of Brexit and the task to resolve a parliamentary standoff to her successor. A new conservative leader is not expected to be put in place before July, but a dozen candidates are running in a contest that formally opens on Monday.

Asian Markets

Japanese stocks appreciated for the week and stopped a stressful four-week slide. The Nikkei 225 index gained 1.4% as well as the large-cap TOPIX and the TOPIX small index also posted solid gains for the week. The World Bank slashed Japan's growth forecast for 2019 to 0.8% from 0.9% arguing that the US-China trade tension will hurt Japan's economy harder than expected. The World Bank's economic growth forecast for Japan in 2020 was unchanged at 0.7%.

Chinese stocks were not able to keep up with the American or European exchanges as they closed the week close to a four-month low as US-China trade tensions raised the prospect of a protracted and costly economic battle. By Thursday, the Shanghai Composite index fell 2.45% and the large-cap CSI 300 index depreciated by 1.79%. Exchanges in China and Hong Kong were closed on Friday for the Dragon Boat Festival and will reopen Monday.

This week, China stepped up retaliatory measures against the United States in response to the latest tariff escalation. On Tuesday, Beijing announced that it fined Ford Motor Company's mainland joint venture $23.6 million for antitrust violations. Also this week, Beijing started to investigate Fedex for mishandling packages for the mainland offices of Huawei Technologies citing espionage risk and diverting them to the US instead.

While the trade dispute is ongoing, China's slowing economic growth continued to accumulate which raises hope for a new stimulus package from Beijing. On Wednesday, the IMF trimmed its 2019 growth forecast for China to 6.2% from a prior 6.3% estimate and projected 6% growth next year. Due to the worsening trade tensions, the IMF also called near-term outlook particularly uncertain.

June 3 - June 7

**Weekly Market Commentary (May 27- May 31)**

Global Market Highlights

- As trade tensions escalated, US equity markets closed out their worst month since December

- The Chinese government prepared a plan to restrict export of rare earth metals to the US in response to the US trade tension.

- Donald Trump announced a 5% tariff on Mexican goods unless the Mexican government stopped the flow of illegal immigrants across the Mexican-American border.

- Far-right populist parties and liberal pro-EU parties both gained strength after the European Parliament elections.

- Trade concerns continued to dominate the Asian markets as bond yields dropped.

US Markets

During the week, equities dropped substantially as they closed out their worst month since December as trade tensions have been getting worse across the globe. Not only did major large-cap indexes drop, but the typically less sensitive S&P MidCap 400 joined the small-cap Russell 200 index in correction territory.

By the end of the week, all sectors in the S&P 500 recorded losses as energy shares performed worst as domestic oil prices fell to their lowest level since February as US crude inventories fell smaller-than- expected.The trade conflict was the main market mover headline story this week as the tone of trade rhetoric became sharper for both sides.

Donald Trump reiterated that he is nowhere close to making a deal with China and the vice president, Mike Pence, told reporters that the US could more than double the tariffs on China if need be. China also made a move in response to the Huawei ban and announced on Friday, that it was putting together a list of "unreliable entities" of both companies and individuals that would be restricted from doing business with Chinese companies. If this list is released things could get very ugly as companies such as Intel and Qualcomm could get banned or even Apple could be put on this list which could punish Huawei's main competitor and give it an unfair advantage.

US trade policy took another unexpected turn on Thursday when President Trump announced that it would impose a 5% tariff on Mexican goods unless the government of Mexico stops the flow of illegal immigrants across the border. Of course, it would not stop at 5% as the tariff would increase up to 25% by October 1st if the government does not take any action against illegal immigration. This move in trade policy is another example of the US threatening allied nations and coercing them into actions that could be solved peacefully.

The United States is one of the most powerful nations in the world, but through its aggressive trade rhetoric it will lose its most important allies and once these nations turn to a more aggressive stance, American companies will not be able to dominate markets due to the dynamics of globalization.

Automaker stocks fell the most after the new trade policy was published due to the importance of cross-border supply chains in the auto industry. Investors could trade on economic data this week as well, as personal income rose 0.5% in April month-over-month which was above the 0.3% increase forecast by Bloomberg. The PCE Core Index was up 0.2% which was in line with analyst expectations. The University of Michigan Consumer Sentiment Index dropped to 100 points from the expected 101.5 points, but it was above April's 97.2 points.

The Chicago PMI index increased to 54.2 points in May which was above the expected 54 points. This week the yield on the 10-year Treasury note fell to a 20-month low and closed at 2.12% which is close to a 27% drop in one year. Major indexes such as the Dow Jones Industrial Average fell 3.0%, the S&P 500 dropped by 2.8% while the Nasdaq Composite index lost 2.9% by the end of the week.

European Markets

European equity markets did not do much better than its Asian or American counterparts as investors rushed to decrease risk as trade tensions have been increasing and as the new plan to increase tariffs on Mexico worried investors. The main market moving story in Europe was the European Parliament elections that happened over the weekend.

As traditional center-left (Progressive Alliance of Socialists and Democrats, S&D ) and center-right parties (European People's Party, EPP) that dominated the EU for decades, lost their majority in the EP for the first time, far-right populist parties and liberal pro-EU parties both gained ground as the rejection of the status quo was less severe than analysts expected. The new outcome of the elections will most likely make it harder for the European Parliament to reach consensus.

German retail sales showed an unexpected drop and the German consumer price inflation data was also worse than expected. Further economic data, such as the Italian Q1 GDP contracted on an annual basis. The euro and the British pound was stronger compared to the US dollar as bond yields in the region dropped. Several analysts suggest that the ongoing bull market might be on borrowed time and soon a bear market may arise. Italy also caused worry in investors as they started selling Italian government bonds amid new fears of a showdown between Brussels and Rome over Italy's higher debt levels.

A key measure of risk, the spread on the 10-year Italian government bond yield and the German equivalent spiked to 2.95% on Friday versus 2.78% on Monday. Also this week, Salvini challenged Brussels that the EU rewrite its spending rules and demanded that the EU cuts taxes to boost growth.

The European Commission also warned Italy's finance ministry that its debt levels will rise to 135% of GDP by 2020 from 133.7% this year. This is an issue because Eurozone governments are mandated to limit debt levels to 60% of GDP. The Bank of Italy called for measures to cut the country's debt.

In Italy, where tensions increased between the national government and the EU, the FTSE MIB Index dwindled almost 3%. The European Stoxx Europe 600 shed 2%, the UK's FTSE 100 dropped by 1.6% and the German DAX index decreased by 2.4%.

Asian Markets

Asian equity markets finished mostly lower as automakers saw heavy pressure due to the unexpected threat to increase tariffs on Mexican goods from the US. Japanese stocks ended lower for the fourth consecutive week. By the end of the week, the Nikkei 225 fell 2.4% and it is only up 2.9% for the year.

The increasing trade tensions between the US and China caused anxiety for investors which could damage Japan's already crippled economy. Many market participants believe that the stock market frailty, soft export demand, and faltering consumer spending are prone to keep the Japanese government under pressure to hold-off on the twice-delayed consumption tax increase which is scheduled to be implemented in October.

The better-than-expected first quarter GDP growth was positive for the market. In the month of April, Japanese consumer inflation increased due to higher energy and utility costs as well as headline and core consumer prices increased 0.9% on an annual basis over the same month. The core-core inflation figure, which excludes the energy and fresh food segments, increased by 0.6%, but is still below the Bank of Japan's 2.0% inflation target. The Bank of Japan is reluctant to offer additional stimulus measures to reach its target as several negative side effects may arise. Japanese manufacturing activity moved back into contraction territory in May as export orders fell at the fastest pace in four months.

In China, equities showed a slight weekly gain, but the country's main equity indexes showed their biggest monthly drop since October as the potential for a prolonged trade war increased. The benchmark Shanghai Composite index increased by 1.60% and the large-cap CSI 300 index added close to 1% by the end of the week. Trade relations between China and the United States turned to the worse as China threatened to curtail its rare earth mineral supply to the US and according to news sources, halted purchases of US soybeans. This is of concern because China produces about 80% of all rare earth minerals.

May 27 - May 31

**Weekly Market Commentary**

Global Market Highlights

- Escalating trade tensions have showed their toll on global equity markets, as the DJIA had suffered five weekly declines, the longest losing stretch since 2011.

- Investors are afraid of a technological cold war between the United States and China, as US companies were halting sales to Chinese telecommunications company, Huawei.

- UK Prime Minister Theresa May announced that she would resign on June 7th due to her inability of getting the Brexit proposal approved by the British Parliament.

- The Eurozone PMI continues to show a bleak picture of manufacturing and services activity in the region.

- Japanese GDP growth significantly better than consensus estimates.

- Chinese stocks fall as trade tensions escalate to levels long not seen before.

US Markets

As the US equity markets are headed into the holiday weekend they were hit hard by the escalating trade tensions. By the end of the last session on Friday, the S&P 500 was down by 1.17%, the Dow lost 0.36% and the Nasdaq Composite index sunk the most, 2.2%, as investors are getting increasingly worried about the impact of rising trade tensions on global supply chains. The trade concerns have been weighing on market sentiment as well especially that investors started to worry about a technological cold war. On Monday, news emerged that several large US companies are halting sales to Chinese telecommunications behemoth Huawei which followed a new set of export restrictions that the White House has announced the previous week. As Donald Trump is trying to bankrupt Huawei for no simple reason, there are about 30 companies in the United States from whom Huawei purchases parts. Alphabet, Google's mother company, has already announced that they will not renew the Chinese company's Android license which will deny them access to the Google Play Store and several other crucial features. If the other major parts suppliers decide to halt sales to Huawei, then the Chinese company can face difficulties even though they seem optimistic for now. The chinese consumers have also reacted to the news by boycotting Apple products and supporting Huawei by purchasing their products instead of the IPhones. Since the Chinese market is the largest in the world, it can definitely hurt the sales and perception of Apple in the region. Tuesday seemed as a better day for Huawei though, because the Trump administration granted temporary exemptions of 90 days to the corporations doing business with Huawei. On Wednesday, news emerged that the White House was considering blacklisting more Chinese technology companies. Investors could trade on several economic reports, but they did not bring anything to celebrate. The IHS Markit reported that the manufacturing activity had dropped sharply and reached its lowest point since the financial crisis. Factory weakness was also confirmed as the April durable goods orders showed a 2.1% drop month-over-month compared to the 2.0% forecast by Bloomberg. The 0.9% (estimate -0.3%) drop in core capital goods was very concerning also which exclude aircraft and defense orders which confirms that the Boeing 737 Max aircraft issues were not the major causes of the drop. New and existing home sales have also decreased in April by 0.4% (estimate + 3.0%) and 6.9% respectively. The disappointing data and the search for new safe-haven assets due to the escalating trade tensions have pushed the benchmark 10 year treasury yield down to 2.31%, as it reached its lowest level since 2017. A yield curve inversion has also happened as the 10-year yield fell below the three-month Treasury bill yield which typically signals an economic downturn. The 30-year Treasury note yield was down to 2.75%.

European Markets

European markets were also hit this week as the DAX 30 was down 1.86% by the end of the week and the FTSE 100 dropped by 0.72%. The European Stoxx 600 index lost around 1.50%. The market drop was supported by the increased trade tensions between the United States and China and economic growth concerns after disappointing global manufacturing reports. The pound was higher versus the US dollar as Theresa May decided to resign as soon as June 7th due to her inability to pass the Brexit deal in parliament. The resignation is not likely to change the debate and the parliament is probably not going to support a "No-Deal" scenario as there are still some MP's who are against Brexit of any kind. Bond yields were mixed in the region for the week, but on Friday yields were decreasing across the board. The euro gained compared to the US dollar. Economic data were also released in the EU which showed declines. The eurozone purchasing managers index for manufacturing continued to show a contraction as it slipped from 44.4 points to 44.3 points in April. The IHS services PMI also declined from 55.7 points to 55.0 points which is the first decline after four increases in a row. During the weekend, European voters are going to the polls as they elect the 751 members to the European Parliament located in Strasbourg. The results will be announced on Monday , but according to analysts making compromises will be more difficult as the parliament will get more divided.

Asian Markets

Asian equity markets finished the week in negative territory as the Nikkei 225 index in Japan shed 0.6%, the benchmark Shanghai Composite index fell 1% and the CSI 300 index dropped 1.5%. In Japan, exports have been decreasing for a fifth consecutive month in April due to the slowdown in semiconductor chip making equipment shipments to China. According to reports published by the Ministry of Finance, exports fell by 2.4% (estimate -1.8% ) in April while imports rose 6.4% (estimate +4.8% ) which is the largest increase since November. The Nikkei Manufacturing PMI dropped in May to contraction territory of 49.6 points from April's 50.2 points. After the first quarter, the Japanese Cabinet Office reported that the Japanese economy expanded at a 2.1% annualized rate whereas the market has expected a 0.2% decline. According to the report, the main driver was external demand. The decline in Chinese markets were mainly caused by the increasing tensions between the world's two largest economies and that the Trump administration is considering penalizing more Chinese tech companies after it put Huawei on a blacklist. The administration is considering five surveillance technology companies such as Hikvision Digital, China's largest surveillance camera maker, to be put on a blacklist that would ban them from using components or software from American enterprises. Furthermore, as China has retaliated on tariffs, they might also retaliate on American companies if Donald Trump decides to go ahead with the blacklisting.

May 22 - May 26

**Weekly Market Commentary**

Global Market Highlights

- Global markets finished the week mixed due to the increasing geopolitical tension as well as investors flocking to safe haven assets.

- US - China trade worries dominated the markets this week as China announced retaliatory tariffs on US made products.

- Announcement from the The White House that it would delay a hike in auto tariffs on European and Japanese made cars for at least six months fueled positive sentiment.

- Britain's Labour and Conservative parties broke down on Friday, two weeks before another parliamentary vote on the United Kingdom's withdrawal from the EU.

- Italian bond yields jumped as EU and Italian budget deficit tensions reemerge.

**US Markets**

US equity markets were down for the week due to the uncertainties surrounding the US-China trade agreement and upbeat economic data was not able to move the indexes into the green. The markets were dominated by US-China trade worries after China announced retaliatory tariffs on an additional $60 billion worth of imports from the United States. American corporations that have a larger exposure to the Chinese markets were hit hard this week, hence Apple falling nearly 6% as uncertainties around iPhone sales in China and rising costs of components kept dominating sentiment.

This week the White House also announced that it will delay its hike in auto tariffs on European and Japanese cars for at least six months. Furthermore, on Friday the Trump administration agreed to lift tariffs on metals imported from Canada and Mexico, but this news did not have a substantial effect on the markets.

After the US announced the increased tariffs on Chinese products, markets were hit hard because Wall Street has taken granted that the Federal Reserve would step in to counteract any economic slowing caused by tariffs. According to statistics on Thursday, futures markets were pricing in a 75% chance of a rate cut by September.

Investors were released some key economic data this week, such as the preliminary University of Michigan Consumer Sentiment index which rose to 102.4 points in May from April's 97.2 points. This is the highest level since 2004, which implies that business sentiment is at a 15 year high and that the business climate and perception of market growth is positive.

The week has been very volatile reading the CBOE VIX index which started the week at 18.62 points, but by the end of the session on Friday it dropped to 15.96 points. By the end of the week, the DJIA fell 0.7%, the S&P 500 dropped 0.8% and the Nasdaq Composite contracted by 1.3%.

**European Markets**

European equities were mixed as US-China trade concerns lingered ahead of the weekend, while Brexit uncertainties continued to rise as talks fail to deliver any new progress. The talks between Britain's Conservative and Labour parties broke down Friday as Jeremy Corbyn announced that his party would vote against Theresa May's Brexit deal in early June. This new roadblock comes just two weeks before another parliamentary vote on the United Kingdom's withdrawal from the European Union. Due to the continuous disagreements regarding the Brexit withdrawal agreement, the most likely scenarios now are that a Conservative leadership will take place or a new general election will be held.

On the last day of the week, the president of the United States announced that he would delay auto tariffs on cars imported from Europe, Japan, and other countries for at least six months. Italy was also in the headlines this week as the country's Deputy prime minister, Matteo Salvini increased tensions with the EU by stating that he would be prepared to see Italy's budget deficit rise above EU limits if it were to boost employment. In connection to the news, the Italian 10-year bond yield increased to 2.75%. Economic data was also a point of conversation this week.

The Eurozone core consumer price inflation came in higher than expected in April and new car registrations decreased last month. The euro and the British pound decreased against the US dollar and bond yields in the region were mostly lower. By the end of the week, the DAX 30 index grew 1.49%, the FTSE 100 was up 2.02% while the Stoxx 600 index increased by 1.16%.

**Asian Markets**

Asian equity markets closed the week mixed as economic and earnings data pleased and trade concerns cooled a bit. However, the US-China trade uncertainty was also the main topic of conversation in Asia as well which was made worse by Donald Trump signing an executive order giving the Commerce Department authority to ban telecommunications network gear and services from foreign adversaries, which caused a drop in Chinese markets.

A 7.2% gain in Chinese April retail sales marked its slowest growth pace in more than 16 years and according to economists the latest tariff escalation will likely shave 0.3% off the nation's GDP this year. Many believe that the Chinese government will roll out additional stimulus measures to put a floor under the slowing economy. The Shanghai Composite index was down 1.94% by Friday and the Hang Seng index also dropped by 2.11% this week.

In Japan, stocks ended lower for the week. The Nikkei 225 index fell 0.4%. On the first trading session of the week, the Japanese Cabinet office downgraded its assessment of current economic indicators to "worsening" for the first time in more than 6 years. The preliminary data points to a 0.9% decline in March versus February's numbers. According to analysts, the Japanese economy contracted at an annualized 0.2% rate due to weakness in overall business conditions. Even though the economy is recovering at a moderate pace, weaknesses arise in exports and industrial production.

May 14 - May 19

May 6-12

**Global Market Highlights**

- The global equity markets showed mixed results with plenty of geopolitical and macroeconomic catalysts that have made the markets the most volatile since January.

- The US equity markets were shrugged by the White House statement that the Chinese tariffs would increase to 25% on $200 billion of chinese goods on Thursday night.

- Traders could also welcome a long awaited IPO, Uber Technologies, to the markets  which dropped 7.6% from its $45 debut price.

- European markets were mostly higher at the end of the week after solid macroeconomic data.

- Asian markets approached a three-month low after increased tariffs and elongated trade talks.

**US Markets**

Major American indexes were down for the week after Donald Trump tweeted on Sunday that he would increase the Chinese tariffs from 10% to 25% and levy it on an additional $200 billion of Chinese goods. On Monday, indexes were lower, but by the end of the session losses were mostly recouped suggesting that investors viewed this tweet as a negotiating tactic.

Additional losses were incurred on Tuesday when Mike Pompeo canceled an important meeting with German Chancellor Angela Merkel, because he had to fly to Baghdad to respond to a rising military threat from Iran.

Friday brought another volatile day to traders as the Chinese tariffs were increased to 25% on $200 billion of Chinese goods which joined another $50 billion in important Chinese products already taxed at the increased rate. As seen in the past year, China vowed to levy retaliatory tariffs, but did not specify when this will come into effect. Talks are continuing between the two nations and according to Steven Mnuchin they are making progress. Another suggestion from a Federal Reserve official calmed the markets implying that rising tariffs might persuade the central bank to cut interest rates.

Earnings season is starting to slow down with only 57 S&amp;P 500 companies left to report their Q1 performance. A few macroeconomic data also came to the attention of investors such as the April CPI index which increased by 0.3% MoM, below the 0.4% increase in estimates. The growth was attributable to increased gasoline prices, but for food prices this was the first decline since June of 2017.

Uber Technologies, the long awaited ride-sharing company, also debuted on the markets on Friday at a price of $45, but by the end of the session it dropped by 7.6%. The debut still made it in to the top 10 offerings ever.

The Dow Jones Industrial Average dropped 2.16% in the course of the week, while the S&amp;P 500 was down 2.22% and the Nasdaq saw a 3.12% drop in its value. Treasuries were nearly unchanged on Friday.

**European Markets**

European markets finished the week with slight losses due to the increased tariffs on Chinese goods even though regional macroeconomic data were better than expected. Investors could trade the better than expected UK Q1 GDP report which showed that the British economy has grown at 1.8% rate year over year which is the fastest pace since 2017. Investors believe that this pace could be caused by the maneuvering ahead of Brexit and that the UK manufacturing production grew more than expected in March.

The regional currency, the Euro and the British Pound, rose against the US Dollar and the treasuries in the region were mostly higher. Additionally to the upbeat regional economic performance, German exports also rose 1.5% since February and 1.9% year over year in March which is a sign that one of Europe&#39;s largest economies is doing better than previously forecast.

On the other hand, the European Commission lowered its eurozone forecast from 1.3% to 1.2% in 2019 saying that the region&#39;s economy is hindered by the US-China trade fight and the uncertainty surrounding Brexit. Furthermore, Italy&#39;s budget deficit is on pace to reach 3.5% by 2020 which is above the 3% ceiling set by the EU&#39;s fiscal policy.

The Stoxx Europe 600 Index dropped by 3.5%, while the FTSE 100 declined by 2.4% and the German DAX was 2.9% lower by the end of the week. The volatility of the European stock bundle index, the EURO STOXX 50 Index was at a five-month high.

**Asian Markets**

Mainland Chinese stocks were down due to the uncertainty surrounding the US-China trade talks and the increased tariffs levied on $200 billion of Chinese products by the United States on Friday. Meanwhile, trade talks are ongoing and a trade deal could be reached in the next few months. However, escalation of threats and retaliation by the Chinese government could increase the volatility of global markets as well as could increase the risk of a no deal and increase uncertainty.
In Japan, the PMI rose to 50.2 points in April from March&#39;s 49.2 points which means that the Japanese economy is back to an expansionary state. The improved data was a reflection of the improved manufacturing activity which reached a three-month high and regional companies hired more workers as well as became more optimistic about the business outlook of the country. However, export orders fell due to the US-China trade dispute which keeps weakening global demand for Japanese semiconductors.

Investors were rattled by the 1.9% fall in pay in March, which is one of the steepest declines since June 2015. The average analyst expectation was a fall of 0.5%. Many market participants believe that the drop in pay was due to lower bonuses and less overtime hours worked during the month. On the other hand, improved manufacturing activity in April could help increase wages in the upcoming months.

The Nikkei 225 Index was lower by 4.1% on Friday, while the Shanghai Composite Index and the CSI 300 Index shed about 4.5% and 4.7% respectively.