Global Markets

Global financial markets gyrated around the election results in the U.S. The upset victory by Donald Trump initially sent equities tumbling especially in Asia. Cooler heads prevailed during early Wednesday morning and equities staged a rally in Europe (after initially sinking) and in the U.S. The prospect of less regulation sent financial and health care shares higher. However, the 'Trump rally' did not last through the end of the week. In government bond markets, investors were betting that expansive fiscal spending and tax cuts under a Trump administration would mean higher bond yields after years of low real growth and low inflation across Europe, North America and Japan.

Over the week, most equity indexes advanced with the exception of emerging markets in Asia that can be potentially hit by changes in U.S. international trade and immigration. Gains ranged from 0.1 percent (Kospi) to 5.4 percent (Dow). Declines ranged from 0.5 percent (Hang Seng) to 3.7 percent (Bolsa).

Global Stock Market Recap

Europe and the UK

After declining the previous week, equities rebounded in volatile trading to end the week mostly in positive territory. The FTSE added 0.6 percent, the CAC advanced 2.6 percent, the DAX jumped 4.0 percent and the SMI was 3.8 percent higher. The indexes rallied Wednesday in the wake of Donald Trump's selection as U.S. president. But gains eroded and turned negative towards the end of the week. Investors had more time to fully take in Trump's surprise victory and the subsequent rally began to fade as traders began to shift toward a more wait and see attitude, as they observe how the new presidency unfolds. The pullback though was partly due to profit taking after Wednesday's outsized gains.

The FTSE was among the weakest performing indexes in Europe at the end of the trading week as the pound sterling rallied to a 5-week high and Brexit worries returned to the fore after some MPs told the BBC they are prepared to vote against triggering Article 50.

After an initial selloff prompted by the surprise of Trump's win, European stocks on Wednesday were boosted by industries that might benefit from the outcome. Banks and health-care shares rallied as did miners and construction. And promises to increase public spending also spurred bets for higher inflation, dragging down defensive shares such as utilities and real estate.

According to the European Commission, increased downside risks mainly due to 'Brexit' and uncertain economic trends in China will result in slower growth in the Eurozone. Growth in 2016 was increased to 1.7 percent from 1.6 percent. However, the growth projection for 2017 was trimmed to 1.5 percent from 1.8 percent. The Eurozone economy was forecast to expand 1.7 percent in 2018.

Most economic data released during the week disappointed. Euro area retail sales retreated. In Germany, manufacturing orders and industrial production were down while the merchandise trade surplus narrowed. In France, the trade deficit widened and industrial production swooned. And in the UK, industrial production declined for a second month while the trade deficit widened.

Asia Pacific

Equities gyrated around the U.S. presidential election, first plunging then rallying. On the week, emerging country shares retreated while those in the major industrial countries advanced. In the immediate reaction to the election results, equities sold off. But after shares rallied Wednesday in the U.S. and Europe, Asian stocks followed and rallied also. At week's end, most indexes followed here retreated leaving a mixed picture across Asia for the week. The largest gains for the week were in Australia, Japan and Shanghai while emerging indexes such as those in Taiwan, Philippines and Indonesia were down. India also tumbled. 

On the week, the Nikkei was up 2.8 percent while the Topix added 2.3 percent. Japanese investors were inspired by the decline of the yen on expectations of expansionary fiscal policy in the United States. Australian equities rallied with a 3.5 percent gain as the local currency skidded lower against the U.S. dollar.

In China, the Shanghai Composite added 2.3 percent on the week as the yuan weakened to hit a fresh six-year low against the dollar. The currency tracked a broad rally in the U.S. dollar as investors braced for further uncertainty over coming weeks. The index rallied after news that the long-awaited Shenzhen-Hong Kong Stock Connect will be officially launched on November 21. Stock Connect programs are securities trading and clearing arrangements that link China's mainland stock exchanges to that of Hong Kong.

The Shenzhen-Hong Kong Stock Connect program is the latest step in the liberalization of China's capital account. The programs allow mainland investors to trade and settle shares in the Hong Kong market via their local exchanges, and vice-versa. The Stock Connect initiative further opens China's capital markets to international investors by providing access to mainland-listed A-shares and allows domestic investors to access stocks listed outside the Mainland. The Shenzhen-Hong Kong Stock Connect program is the latest step in the liberalization of China's capital account.

During the week, China's October consumer and producer price indexes and merchandise trade data were released. The inflation data proved to be positive while both exports and imports once again disappointed. And in Japan, the volatile machine orders data for September tumbled much more than expected.

Reserve Bank of New Zealand

The RBNZ cut its overnight cash rate (OCR) 25 basis points to 1.75 percent as expected. In its statement, it said that global inflation remained weak even though commodity prices had recovered from their lows. The RBNZ has an inflation target of between 1 percent and 3 percent. Third quarter consumer prices were up only 0.4 percent on the year for the third consecutive quarter. Concerns that the NZ dollar is too strong also played into the decision.

The Bank said that "the exchange rate remains higher than is sustainable for balanced economic growth and, together with low global inflation, continues to generate negative inflation in the tradables sector. A decline in the exchange rate is needed."

Currencies

The U.S. dollar advanced against its major counterparts including the euro, yen, Swiss franc and the Canadian and Australian dollars. The currency declined against the pound sterling. The currency also gained against the yuan and the Mexican peso on concerns that emerging markets could suffer most if president-elect Donald Trump acts on his campaign's protectionist rhetoric. Emerging markets currencies skidded against the dollar. U.S. bond yields soared on expectations of higher U.S. inflation and interest rates and stirred worries about capital outflows from the region. The fast pace of the dollar's appreciation against the yen prompted a response from Japan's Finance Minister Taro Aso. "It is exceptional for the yen to move 5 yen (against the dollar) in two days," he told reporters, stressing the importance of market stability.

Sterling enjoyed a renaissance and had its best week against the euro since July 2015 as investors took a more benevolent look at sterling after the U.S. election. Rising European political risk and the receding chances of another Bank of England interest rate cut this year also played a role. The currency had been battered in the wake of the Brexit vote to 168-year lows.

The Mexican peso tumbled following Donald Trump's victory. The currency was volatile in the run up to Wednesday's election. It has since plummeted to fresh low after fresh low after Mr Trump won amid fears that he would act on his pre-election rhetoric concerning immigration, international trade and the building of a wall along the border between the U.S. and Mexico. According to Mexico's finance minister, Mexico has not intervened in the currency markets yet. He noted that local intervention would not have had any impact.

Selected currencies — weekly results

Indicator scoreboard

Germany

September manufacturing orders declined 0.6 percent following a slightly smaller revised 0.9 percent rise in August on the month. Orders were 2.7 percent higher on the year. The headline monthly decline was concentrated in capital goods which were down 1.6 percent. However, basics were up 0.5 percent as were consumer and durable goods. Regionally the slide was led by the domestic market which unwound almost half of August's 2.4 percent increase with a decline of 1.1 percent. Overseas orders were off only 0.3 percent but this came after a 0.2 percent decrease in the previous month and constituted the third decline in the last four months.

September industrial production was down 1.9 percent on the month but was 1.1 percent higher from a year ago. September's drop was broad-based and led by a 2.4 percent monthly drop in capital goods, albeit after a 5.5 percent jump in August. Consumer goods (minus 1.9 percent) were not far behind but intermediates (minus 0.5 percent) held up rather better. Total manufacturing output was 1.7 percent lower than in the previous month when it spurted 3.7 percent.

September merchandise trade surplus slipped slightly from a smaller revised €21.6 billion in August to €21.3 billion in September. The unadjusted surplus stood at €24.4 billion, up from €17.4 billion last time. The limited headline deterioration reflected a 0.7 percent monthly decline in exports that more than offset a 0.5 percent drop in imports. This was the fourth decline in the former in five months and while only denting a 3.4 percent jump in August means that overseas purchases have been only flat since March/April. The decline in imports was the second in three months and leaves a similarly broadly stable picture over the last six months or so. Unadjusted annual growth of exports now stands at just 0.9 percent and of imports at minus 1.9 percent.

United Kingdom

September industrial production declined 0.4 percent on the month following another, unrevised, 0.4 percent drop in August. This reduced annual output growth from 0.5 percent to just 0.3 percent. However, the key manufacturing sector saw production rise a strong monthly 0.6 percent, its second consecutive increase and its best performance since April. Buoyancy was particularly apparent in pharmaceuticals (2.5 percent), chemicals (1.5 percent), coke & petroleum and other manufacturing & repair (3.6 percent). However, there was also a sizeable decline in transport equipment (2.1 percent) as well as smaller drops in machinery & equipment (0.6 percent) and computer, electronic & optical products (0.5 percent). Total industrial production was hit by weakness in mining & quarrying (minus 3.8 percent) which alone subtracted 0.5 percentage points from its monthly change. Water supply (minus 1.1 percent) and electricity & gas (minus 1.9 percent) also had a negative impact.

Following a downwardly revised £11.15 billion in August, the September trade deficit widened out to £12.70 billion, its worst reading since June. The deterioration reflected a disappointing combination of weaker exports, which fell 0.8 percent on the month, and higher imports, which were up 3.6 percent. More optimistically, the increase in the headline red ink was only partially mirrored in the core balance which excludes oil and other erratic items. This saw a smaller £0.54 billion rise to £11.77 billion but even this was a record high. Core exports were up 2.8 percent from August while imports were 3.5 percent stronger. Net trade with the other EU members was in a deficit of £8.73 billion, an 11.1 percent rise from last time, while the balance with the rest of the world climbed from £3.29 billion to £3.97 billion. The September data were hit by the boost to import prices caused by the slide in the pound. Underlying volume trends actually seem to be moving in the right direction. Thus, third quarter core export volumes were up 2.2 percent from April to June compared with a 2.4 percent decline in comparable imports.

Asia/Pacific

China

October merchandise trade surplus was $49.1 billion after a surplus of $42.0 billion in September. On the year, exports declined 7.3 percent while imports slipped 1.4 percent. On a seasonally adjusted basis, exports were down 0.6 percent after increasing 3.5 percent in September. External demand from China's key trading partners remained subdued on the year. China's exports to the United States were down after falling 8.1 percent in September. Exports to the European Union fell 8.6 percent after declining 9.8 percent in September while exports to Japan were down 3.2 percent after declining 7.0 percent. In yuan terms, the trade surplus was Y325 billion, up from Y278 billion the month before.

October consumer prices were up 2.1 percent from a year ago after increasing 1.9 percent in September. On the month, the CPI slipped 0.1 percent. The increase in headline inflation was mainly driven by food prices, which were up 3.7 percent on the year after rising 3.2 percent the month before. Non-food prices edged up slightly from 1.6 percent to 1.7 percent in September. Urban areas CPI was up from 2.0 percent to 2.2 percent while in rural areas the CPI was up from 1.6 percent to 1.8 percent.

October producer price index rose 1.2 percent on the year after inching up 0.1 percent in September. The PPI has been trending higher since the end of 2015 and has now been above zero for the two last months after almost five years in negative territory. On the month, the PPI was up 0.7 percent, the fourth consecutive monthly increase. Most categories of producer prices posted stronger annual increases compared with September. In particular, prices for production materials increased 1.6 percent, up from 0.1 percent, while fuel & power prices were up 1.8 percent after dropping by 1.9 percent in September. Consumer goods edged up 0.1 percent. Inflation also picked up for metals and other raw materials.

Bottom line

The U.S. presidential election dominated the news and will continue to do so going forward as the markets assess personnel appointments and any policy moves that might be announced as the country moves forward to January 20, 2017 when Donald Trump will be sworn in as president. Equities were mixed, bond yields in the U.S. and elsewhere soared and the dollar continued to climb in anticipation of higher interest rates in a time of very low global rates.

Looking Ahead: November 14 through November 18, 2016

Anne D Picker is the author of International Economic Indicators and Central Banks.