Weekly Market Update 2018 10 15


Global Markets Fall

Global equity markets suffered substantial losses last week, with the S&P 500 falling over 5% by Thursday and the FTSE 100 breaching the 7000 level. There were few identifiable catalysts for why last week should see the beginning of a selloff; however, a delayed reaction to rising US bond yields and interest rates were the most heavily referenced reason. Higher bond yields make equities appear relatively less attractive for investors. The most expensive areas of the market such as the technology sector, suffered the greatest losses, having led the rising market over many months. Nevertheless, there was some respite by Friday as figures from the US indicated that inflation was not rising as fast as expected, potentially lessening the pressure on the Federal Reserve to raise rates as quickly going forwards.

UK GDP Growth Improves

The rolling three-month GDP estimate from the Office for National Statistics (ONS) showed that the UK economy continued to improve over the three months to August, growing by 0.7% on the previous three months. However, some one-off improvements in July to construction activity are unlikely to be repeated going forward, and it is expected that growth will revert to a lower level by the end of the year. The spectre of Brexit is still hanging over the UK economy, particularly on investment, and until there is more clarity over the situation, this is unlikely to change. However, a productive deal with the EU has the potential to provide a short-term boost for the UK as the delayed activity is unwound.

China Monetary Boost

The Peopleā€™s Bank of China (PBOC) has lowered the required reserve ratio for most banks by 1% to 14.5% last week and down from 17% at the end of 2017. The action is a way of increasing lending by unlocking banks capital. The Chinese economy has been slowing, and with growing pressure from the escalating trade war with the US, the Communist party will be keen to ensure that the domestic economy holds up. However, the extent to which both the central bank and government can continue to drive the economy with debt and centralised spending programmes will ultimately be limited. It is expected that the Chinese economy will continue to slow and reach a lower level of 6.5% annual growth over the next several years as the rising levels of debt begin to stabilise, and activity becomes more focused on domestic consumption rather than trade and infrastructure spending.

Market Data

Index Open Close Change % Change
FTSE 100 7318 6995 -323 -4.41%
S&P 500 2885 2767 -118 -4.09%
Dax 12111 11523 -588 -4.86%
Cac 40 5359 5095 -264 -4.93%
Nikkei 225 23783 22694 -1089 -4.58%
UK 10 Year Gilt Yield 1.72 1.61 -0.11 -6.40%


This article was written by Prydis

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