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Global equity markets continued their recovery, almost in lockstep throughout the week. The S&P500 ended the week up 1.02% while the MSCI World Index gained 1.28%. This comes on the back of mildly exceeded expectations amongst global macroeconomic indicators.
Bond Yields Rally
As the markets recovered on the back of easing global tensions, we saw bond yields recover. In other words, bonds prices fell because people are likely moving away to riskier assets. We have seen a corresponding steeping of the yield curve over the past week. Perhaps more interestingly, that means the market is discounting future rate cuts from the Federal Reserve that it was expecting only a few weeks ago.
Value Vs Growth
Small cap value was the place to be last week. The Russell 2000 Growth gained 3.18% in the week while the iShares Russell 2000 Value gained 4.06% in the week. Small cap companies have been disproportionately vulnerable to the trade war as they have less pricing power and their supply chains are less flexible to defray the costs.
Oil Prices Rally
This comes on the back of a drone attack on a key Saudi pipeline over the weekend. Both crude oil and midstream refiners are up on the news. Iran was the key suspect on Sunday, as they have become aggressive in the region following the US backing out of their multilateral nuclear deal. On Monday, Yemeni rebels claimed responsibility, saying it was in response to a Saudi blockade of Yemen. It has also been reported that Iranian weapons were used in the attack. Saudi Arabia initially believed they could get a third of the production back on Monday. That outlook has since been pulled back. The Saturday attack has stopped approximately 5.7 million barrels of oil a day.
Note: Late on Monday, Saudi Arabia increased the estimates of affected production from a third to 50% of Aramco production capacity.
Europe
Weak macroeconomic data in Europe supported the European Central Banks decision to cut rates by 10 basis points and relaunch the bond buying program. The region is still suffering from a cyclical slowdown, most notably in the German manufacturing sector. Germany represents a center of financial strength for the EU. The country’s economy is largely driven by the industrial sector.
Concerns of a hard Brexit were largely allayed as Boris Johnson’s second call for another election were turned down by Parliament. He has been travelling throughout Europe in the hopes of delivering Brexit by October 31st.
The information contained in this article is for information purposes only, and represent the views of the author. It is not intended as specific investment or financial advice, or a recommendation or solicitation to buy or sell any security. Any investments or strategies listed in this article may not be suitable for all investors. Past performance is not indicative of future performance, and as with any investment, prices may fluctuate. It is recommended that advice is sought from a qualified investment professional prior to implementing any financial plan. LOM has made every effort to ensure that the contents herein have been compiled from sources believed reliable, however LOM does not warrant the accuracy, adequacy, timeliness, or completeness of this information expressly disclaims liability for errors or omissions in this information.
