Global Stocks Rally Ahead of the Festive Season

The US market remains positive despite outcome of recent midterm elections

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Nov 11, 2018
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Global economies released various economic data in the last two weeks with some remaining upbeat going into the tail end of the year. The U.S. non-farm payrolls continued to impress while jobless claims fell. The unemployment rate held steady at the lowest level of 3.7% since 1969 and the Federal Open Market Committee statement was positive enough to suggest that another rate hike next month is still on the cards.

As such, the U.S. equities markets have rallied since the start of the month and, driven by the last earnings season of the calendar year, this rally could take the market higher going into the festive season.

The S&P 500 index (SPX, Financial) tested multi-year highs in mid-October but then plunged to hit a new five-month low of 2,645 towards the end of last month. However, a softening stance between the U.S. and China regarding a potential trade deal that will ease the pressure exerted by trade war fears over the last few months has helped to steer things upward in the last several weeks, helping the S&P 500 hit 2,800 points, representing a gain of 5.29% since Oct. 29.

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And while the split in the U.S. Congress, which saw Democrats win the Parliamentary majority and Republicans retain the Senate majority in the most recent midterm elections, appeared to halt the S&P 500’s most recent rally, optimism remains high following the recent economic data and the FOMC statement.

On the other hand, the Nasdaq Composite Index has gained 356 points or about 5% over the same period while the Dow Jones Industrial Average Index is up 6.33% after adding 1,546 points.

In the U.K., the FTSE 100 Index fell on Friday from 7,140 points to 7,070 points by midday but still completed the day on a high by recouping some of the losses incurred early in the day to close at 7,107 points. In the last couple of weeks, the U.K.’s Brexit situation has gone from a state of a potential hard Brexit decision to a more hopeful scenario following the Brexit Secretary’s comments, which suggested a deal could be agreed to when the European Union and the U.K. team meet again on Nov. 21.

In the most recently released U.K. Manufacturing data, the U.K. Manufacturing PMI fell to the lowest level of 51 points in two years as fears of a no-deal Brexit decision continued to impact the market. Reports last month indicated that several U.K. manufacturers had started to cut jobs following Brexit uncertainty.

While issuing the U.K. monetary policy statement last week, the Bank of England governor Mark Carney said that the bank was likely to hike rates regardless of the outcome of the Brexit negotiations. This appears to have sent some positivity in the market helping the FTSE 100 Index to add 79 points, which is about 1.13% gain, towards the end of last week.

In the EU, the DAX Index has added 2.14% since Oct. 30 while France’s CAC 40 Index is up 2.58% over the same period.

In Asia, Japan’s Nikkei 225 Index has added 1,100 points since Oct. 29, rising 5.2%. Some analysts have attributed the Nikkei 225 Index’s recent gains to a weakening yen. Analysts at JPMorgan Chase (JPM, Financial) said that the Index could easily rocket to reach 28,000 points if the USD/JPY currency pair hits 125. Currently, the USD/JPY currency pair trades just under 114, which suggests that 125 is well within reach if the pair maintains the current bull run.

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However, the Nikkei 225 Index is currently pegged at 22,250 points, which means that rallying to 28,000 points from this level will require more than just a strengthening U.S. dollar. The Nikkei lost more than 12% during October and is now in a recovery. The perceived correction on the most recent plunge could be what drives it closer to 25,000 points. Before the decline started on Oct. 2, the Nikkei Index had rallied to trade at 24,270 points, a new multi-decade high. Still, a 28,000 level looks to be a long shot.

Elsewhere in Asia, the Shanghai Composite Index dropped towards the end of last week but is still up 2.23% since Oct. 29, while South Korea’s Hang Seng Index is up 4.13% since Oct. 30, despite dropping more than 3% at the end of last week.

Disclosure: I have no positions in the securities mentioned.