Market Action

Thanks to a better than expected October for US earnings and a strong employment report, global equities rose this week. Yield on the US 10-year Treasury note fell 10 basis points to 1.71% and a barrel of West Texas Intermediate crude oil fell a dollar to $56.35. Volatility, as measured by the Chicago Board Options Exchange Volatility Index, only changed slightly from last week’s levels, at 12.65.

The US hiring pace in October far exceeded expectations as nonfarm payrolls expanded by 128,000 jobs. Only 75,000 added jobs were expected this month. Average hourly earnings expanded at a 3% rate, outperforming inflation. Furthermore, the jobless rate only raised a tenth of a percentage point from last month’s 3.5% rate, which was the lowest in half a century.

The US Federal Reserve cut interest rates again by a quarter of a percentage point to a range of 1.5%-1.75%. On Wednesday the Fed indicated that it has set a high bar for further adjustments to interest rates, giving the impression that policy is put on hold for the foreseeable future. The Federal Reserve would have to see the global economic backdrop worsen significantly to consider cutting rates further. A notable change in inflation would be needed for the bank to raise rates. Over the last several weeks the US yield curve has flattened after emerging from inversion.

The British Parliament has voted to hold a general election on December 12th. In early polling, Prime Minister Boris Johnson’s conservative party leads by 10 points, but a lot can happen between now and December. In a separate but related event, US President Donald Trump told Nigel Farage, Brexit party leader, in an interview that it would be difficult for the US to create a trade deal with the UK under the conditions of the current Withdrawal Agreement.

The US House of Representatives voted this week to formalize the impeachment inquiry into President Trump. The inquiry has been conducted behind closed doors, but public hearings are expected in the coming weeks. Currently, the markets are optimistic that the President will last through his term.

In the third quarter the US economy expanded at a 1.9% rate which was faster than the median forecast of 1.6%, but lower than the second quarter’s 2% rate. Consumer spending has been one of the primary contributors to expansion while the contribution from business and government fell flat.

Argentina elected a new President this week. President Mauricio Macri was beaten by the leader of Argentina’s populist party Alberto Fernandez and his well-known running mate Cristina Fernández de Kirchner. The election signals the discontent of Argentineans who are frustrated with Macri and his failure to pull them out of an economic and financial crisis.

Adding to the number of protests raging worldwide is the unrest in Chile, Iraq, and Lebanon. Protests erupted in Chile after a fare hike, forcing the Chilean president to concede to economic demands such as marginally higher taxes on the rich, a higher minimum wage, and a 20 percent increase in the lowest pensions. In Iraq, anti-government protests have turned violent as clashes between protesters and security forces have resulted in thousands of injuries and dozens of deaths. Protesters are demanding jobs, public services, and an end to government corruption. Lebanese protestors have successfully brought about the resignation of Lebanon’s Prime Minister Saad Hariri after two weeks of nationwide protests.

What Could Affect the Markets in the Days Ahead

Hong Kong’s economy shrunk the most to date since the financial crisis. The ongoing protests have brought great uncertainty to the markets and to the future of Hong Kong.

Though the APEC summit planned to be held in Santiago, Chile was canceled due to anti-government protests, negotiators from China and the US say they are on track to conclude an agreement this month. US President Donald Trump and Chinese President Xi Jinping were supposed to sign the accord in Santiago, but now a new neutral venue must be found.

South Africa could lose the investment-grade credit rating it has held for almost 20 years. The rating has brought foreign investment and low borrowing costs to the country. However, Finance Minister Tito Mboweni is forecasting a big budget deficit and ballooning debt.

This Week From BlackSummit

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