Market Summary
Asia
Despite a mid-week drop after the U.S. announced another list of $200 billion in tariffs on Chinese goods, Asian markets ended the week broadly higher for the first time in several weeks. Japan’s Nikkei led the way as it added 3.7% thanks to substantial Yen weakness. Mainland China’s Shanghai Composite wasn’t daunted by the tariff news and tacked on 3.1% for the week in its first weekly gain in two months. Hong Kong followed the mainland at some distance as the Hang Seng was 0.8% higher for the week. In South Korea the Kospi gained 1.7%, but Australia’s S&P/ASX 200, which had been outperforming in the past several weeks, ended the week flat with a slight gain of 0.05%.
Investors quickly put aside news of more tariffs against China from the U.S., and with the U.S. earnings season beginning last Friday we could see markets in Asia rising in conjunction with gains from Wall Street – assuming the earnings season turns out to be a good one as expected. Of course the specter of additional tariffs and retaliation from China remains, but the latest news is that officials in China and the U.S. are willing to work together to find some bilateral solution to the current tariffs.
Europe
European markets gained in four of the five sessions last week, but the one negative performance was enough to ensure weekly gains were modest for the most part. France’s CAC 40 led the weekly gains as it climbed 1.0% higher. The pan-European Stoxx Europe 600 had a 0.7% gain, while the DAX in Germany underperformed with a gain of 0.4%. Germany’s DAX actually began Friday flat, and was only higher on a weekly basis thanks to the Friday gains. While trade tensions have taken a bit of a backseat, Germany’s equity markets remain delicate as they are most sensitive to a potential trade war. London’s FTSE also had a modest gain of 0.6% for the week, snapping a two week losing streak.
The coming week should continue to see gains for European markets, at least as long as trade tensions remain on the back burner. Investor’s focus has already turned toward the U.S. corporate earnings season, which is hoped to be strong enough to push markets higher. Germany is likely to remain a laggard as it is most sensitive to the trade issues, and the U.K.’s FTSE could also see some volatile action due to Brexit concerns, or due to a rising Pound if the Brexit turns out to be a non-issue for the week.
US
U.S. markets also gained in four out of five sessions this past week, and have now been higher in six of the past seven sessions. Friday saw the Dow Industrials topping the 25,000 level for the first time in a month, while the Nasdaq posted a second consecutive record closing high. For the week, the Dow Industrials led gains, tacking on 2.3%, while the Nasdaq added 1.8% and the S&P 500 rose 1.5%. Investor focus turned away from trade concerns and is now on corporate earnings, with earnings season kicking off with mixed results from a trio of major banks.
The coming week should see continued strength from equities as corporate earnings are expected to be solid for this quarter. On the other hand, any day could be subject to volatility if a major company misses earnings projections. And if the last quarter is any guide we could see company stocks falling even after beating results, even if the sector itself is lifted by good results.
Gold/Crude Oil
Gold continued to experience downside pressure last week, failing to find any help from safe haven demand due to the global trade tensions. Instead, the firming U.S. dollar put pressure on the yellow metal, leading to a 1.1% loss for the week, and the lowest close for gold since July 17, 2017. The coming week is expected to see more of the same as gold remains far more reactive to the moves in the U.S. dollar, and traders have pretty much ignored the trade situation as a catalyst for safe haven demand.
Crude finished the week on a good note, but it wasn’t nearly enough to offset the huge losses suffered earlier in the week following the U.S. announcement of $200 billion in tariffs against Chinese goods. Traders were initially concerned of a sharp drop in demand in response to the trade tensions. On a weekly basis West Texas Intermediate crude was 3.8% lower, while Brent crude lost 2.3%. The coming week could see some volatility for crude as the trade tensions remain a question mark, and there is also the possibility of Libya adding production. The end of the week will see a meeting of OPEC that could also introduce market volatility.