The times they are a changin’

More evidence emerged in November of a changing equity market environment around the world. Tech stocks sold off while high-yield stocks outperformed; emerging markets outperformed developed ones.

Dec 2018


  • In the US mid-term elections, the Democrats secured a majority in the House of Representatives but the Republicans increased their majority in the Senate, allowing both sides to claim a victory of sorts. The Democrat victory ended the unified control of Congress the Republicans have enjoyed since 2016. The Democrats could now potentially snag both the Senate and the President with various judiciary inquiries as well as take the chair in some important committees.
  • The UK and EU came to an agreement on Britain’s “divorce” terms to leave the EU. The 500-page plus document was accompanied by a shorter outline of the future trade agreement, which will be fleshed out in the coming months. But in Britain, the agreement was met with dismay by both Brexiteers and Remainers who said they’d work together – for very different reasons – to stop the deal from being passed in Britain’s parliament. Hardline Brexiteers in the ruling Conservative Party then briefly threatened a no-confidence vote in Prime Minister May but could not muster the initial support to force a vote.
  • Oil prices fell sharply on with news the US had granted waivers to some big oil importing countries that allows them to continue to import crude from Iran, as well as general concerns over the growth of the global economy. The combination of slowing demand and increasing supply was enough for the IEA and OPEC to both warn of a surplus in the oil markets in Q1 next year, while Saudi Arabian output hit a record level late in the month, adding to the downward pressure.
  • In another indication of a rebalancing taking place in the global equity markets, tech stocks sold off sharply, high-yielding telecom, utility and real estate sectors outperformed, while low volatility stocks also held up well especially during the sell off at the beginning of the month. Emerging Markets outperformed Developed Markets for only the third month this year, although Europe continued to lag the US. In other asset classes, commodities – especially oil – slipped while government bonds rallied.
  • The trade dispute between the US and China may have reached a détente at the end of the month after a meeting in Buenos Aires between the US and China ended with the two sides declaring a three-month truce on any new tariffs from 1 January 2019. The US administration had earlier in the month threatened to impose tariffs on the remainder of imported Chinese goods if a deal between the two sides was not finalised.


  • Global equity markets endured another volatile month with markets everywhere selling off abruptly in the first week only to slowly recover and end on an uptick, after US Federal Reserve Chair Jay Powell said the US central bank was “just below” its neutral rate, potentially spelling the end to its rate hiking; and a potential breakthrough in the Sino-US trade dispute boosted shares again on the final trading day of the month.
  • Emerging Markets enjoyed their best month since January, comfortably outperforming Developed Markets. A number of drivers were behind the outperformance: the US dollar fell, the US said it had put the next round of China tariffs on hold pending trade talks, and oil prices fell by more than 20%. Asia slightly outperformed other EM regions while EMEA was the best performing region thanks to in part Turkey and South Africa recovering from steep losses over Q3 and into October. A strong bounce in the lira helped Turkey while solid economic data helped the South African rand and subsequently the stock market.
  • The MSCI Asia ex Japan Index gained 5.2% beating the Asia Pacific ex Japan version by around half a percent, reflecting Australia’s underperformance during the month. China was the big gainer, rising 6.3% although it is still more than 14% down for the year to date. Hong Kong also was strong with an almost 8% gain, while Korea also partially reversed October’s steep losses to add 4.7%. Indonesia was again Asia’s best market, up 13% as its currency also stabilised against the dollar.
  • The US ‘FAANG’ stocks of Facebook, Amazon, Apple, Netflix and Google (Alphabet) entered a bear market, defined as 20% lower from their peak. The Wall Street Journal said internal strife at Facebook weighed on FB while Apple said it was cutting orders with component suppliers. The end-of-month rally offset the losses slightly but for the month, tech stocks still underperformed. Meanwhile, Microsoft overtook Apple as the world’s biggest company measured by market cap.
  • Elsewhere in the world, India saw a 10% bounce to return the best month since March 2016. A strong currency helped with the rupee up 6% as did a lower oil price. Latin America, and specifically Brazil, gave back some profits from their gains in October to both end 1% lower while central European markets boosted EMEA further with 9% gains in both Poland and Hungary. In western European bourses, Germany dragged on lower economic data while the UK was also down on worries over Brexit.


  • The event-packed month had investor sentiment see-sawing and global interest rates broadly falling during the month.
  • In the US, treasury yields started the month higher amid stronger-than-expected job market data which supported expectations of continued normalisation of Fed Funds rate . However, the market subsequently began to discount the extent of Fed rate hikes as the month progressed; Falling oil prices, an equity market correction, signs of weaker economic indicators as well as the mixed signals on the US-China trade negotiation, all served to weigh on global prospects and risk sentiment.
  • Against this backdrop, 10-year US Treasury yield fell 16 bps to end the month at 2.99% , while the Treasury yield curve flattened with ten- to two-year yield spreads tightening by eight basis points.
  • Other core rates, as well as Asian domestic interest rates, similarly fell amid the reduced expectations on Fed rate hikes. In Asia, a strong rebound was seen in Indonesia and India’s domestic bond and currency markets, following months of weakness which was attributed to concerns over the impact of tighter global funding conditions on the twin-deficit economies.
  • In the Asian US dollar bond market, while performance was lifted by the lower US risk-free rates, the cautious investor sentiment coupled with heavy new issuances resulted in a broad widening of credit spreads. Non-investment grade credits, in particular, were subject to stronger spread widening pressure, contributing to their underperformance during the month.


  • Oil prices fell 20% on concerns over demand as the global economy slows and production, especially out of the US jumped. Brent hit eight-month lows and WTI fell to its lowest in more than a year. OPEC and the IEA also both warned of a surplus in H1 2019 while the market also reacted to news the US had granted extended waivers to countries wanting to import Iranian oil. On the final day of the month, prices recovered a little on news Russia had accepted the need for production cuts.
  • Iron ore prices plunged after data from China’s steelmakers showed imports of the raw material had reached four-month lows, signaling that iron ore prices were finally catching up with steel prices. Steel production figures from China remained high though ahead of the now traditional winter production shutdowns. Nickel and zinc prices also fell in anticipation of weaker demand from China’s steel mills.
  • Among other commodities, copper rose as data out from China showed an acceleration in infrastructure investment. Gold rose slightly as the dollar fell with a notable spike after the dovish comments from the Fed Chair Powell pushed bond yields lower. Other metal prices edged ahead although both copper and zinc are both still substantially lower for the year while the Baltic Dry Index capped a six-week falling sequence with a gain in the final week of the month.


  • The US dollar (USD) performance during the month of November was mixed. The New Zealand dollar and Australian dollar both managed to outperform the USD by 5% and 3%, respectively. Meanwhile, the Norwegian krone and Canadian dollar were down more than 1%. The euro and the UK pound both ended the month nearly flat against the USD on negative headlines on the Italian budget and Brexit. Currency volatility for these two currencies was high given these market concerns.
  • Asian currencies performed well against the USD. Both the Indonesian rupiah and Indian rupee rallied more than 6%. Indonesia lured back investors as the central bank surprised the market and hiked rates once again (175bps for the year). It also cancelled the rest of this year’s bond auctions which means the fiscal deficit will be about 1.8% versus the original target of 2%. In India, the spat between the central bank and government appears to have cooled.
  • The Chinese yuan traded within a tight range and ended the month slightly stronger against the USD. The ongoing trade dispute with China continued and tensions ahead of the G20 meeting between the two countries kept market sentiment fragile. News that the US decided to delay the 25% tariffs that were due to go into effect on 1 January 2019 in exchange for China buying more US goods and reopening negotiations, also helped sentiment.
  • Elsewhere, the Turkish lira gained 7% against the USD. The trade balance significantly improved in October, providing a boost for the currency. Argentina’s peso and Brazil’s real that were the top performers last month lost nearly 5% and 4%, respectively. In Brazil, the post election euphoria dissipated as the market awaits the new president’s agenda, pushing the real lower.
  • There was a lot of news surrounding the Mexican peso during the month although it ended the month nearly flat against the USD. While markets were still digesting the referendum by the new administration to halt the construction of the new airport, concern resurfaced when news suggested that the new administration may scrap some bank commissions and increase regulations.


  • In the US, more economic data pointed to a robust economy. Wages reached a cyclical high in Q3 and the labour market continued to tighten. For September, inflation remained benign and within the Fed’s target and personal spending rose again while, for October, the Consumer Confidence indicator hit another cyclical peak and employment rose by another 250,000. On the flip side, the ISM manufacturing index was weaker than expected with the orders component notably lower, potentially as a result of the stronger dollar and export tariffs. The Fed also kept rates on hold at 2-2.25% and late in the month Fed Chair Powell said the bank’s policy rate was “just below” neutral, giving a boost to the equity market.
  • Japan’s Q3 GDP contracted by 1.2% year on year, in stark contrast to the 3% growth seen in Q2, with weather- and earthquake-related shutdowns to blame for the slowdown. CPI data again showed lacklustre inflation of just 1.2% yoy.
  • Germany saw its economy contract slightly in Q3 although a rebound in Q4 is widely expected. Italy refused to modify its 2019 budget to meet EU rules setting the stage for a potentially destabilising clash between the two in December and into 2019. French consumer confidence fell to 92 from 95 (as an index) in the light of the fuel protests that have enveloped the country and put the Presidency of Emmanuel Macron under pressure. Eurozone November PMI data underwhelmed with the composite index falling to the lowest level in four years, and Q3 GDP growth also hit four-year lows.
  • China PMI data fell more than expected to the key 50.0 mark, the lowest level since July 2016, adding to fears of a slowdown in the China economy ahead, while retail sales also slowed in October, dragged lower by auto sales. On the positive side, industrial production and investment spending, especially in infrastructure picked up slightly.
  • Elsewhere, the Bank of England and ECB kept rates on hold as expected. Mexico’s GDP for Q3 rose 0.9% qoq and 2.6% yoy but the cancellation of an airport project dominated headlines and the central bank subsequently raised its policy rate to 8% in an attempt to offset the peso’s fall. The Bank of Korea raised its benchmark rate for the first time in a year by 25bps to 1.75%, in line with forecasts. India’s economy cooled in Q3 with real GDP slowing to 7.1% yoy from 8.2% in Q2.

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