The global equity markets saw an uptick in trading activity in the past week.
A fair amount of economic data was released across the world, which provided some movement in the major equity indexes. With that said, the S&P 500 traded to a new all-time high and hasn’t looked back.
As the data below show, the global numbers are picking up:
- Starting in Japan, the Nikkei posted solid gains. This was helped by weakness in the yen against the dollar, which saw the currency depreciate throughout the Japanese trading week. The strong sentiment in stocks was supported by another solid set of figures signaling signs of domestic recovery. First, the final May reading of Japan’s Manufacturing PMI was revised up to 53.1, compared to the preliminary figure of 52.0. The other significant release was the Q1 capital spending, which saw better-than-expected growth of 4.5%, 50 bps better than consensus.
- Conversely, China has been trading in the red for the past week. Mainland traders sang a different tune than their Japanese counterpart after the Caixin Manufacturing PMI not only fell short of expectations, but also signaled contraction, with a print of 49.6 (vs a 50.1 estimate). This is notable considering the state-issued PMI suggested an opposite appraisal of the economy (May PMI: 51.2 vs 51.0). The dichotomy likely left traders scratching their heads after the release of the data, wondering which release paints the most accurate assessment of the conditions.
- Across the pond, the major European Union bourses got off to a strong start out of the gate last week and have managed to sustain those gains. Energy names are among those catching a bid in tandem with Crude futures, which are bouncing back from the recent slide. Also supporting equities in Europe was the mostly-better-than-expected macro-data across the region, led by a slight upward revision in Germany’s Manufacturing PMI (59.5 vs 59.4 preliminary), as well as a better-than-expected gross domestic product (GDP) in Italy, which grew 1.2% (vs an estimate of 0.8%).
After growing at a 3.1% pace in 2016, global growth is set to reach 3.5% this year and 3.6% in 2018, according to the International Monetary Fund (IMF). The IMF has raised its growth forecasts slightly from estimates released last October, as macroeconomic conditions eased for commodity exporters and investment levels grew in advanced economies. It is my view they will continue to bump up their estimates further this year and markets should respond quite positively when they do adjust their numbers higher. And let’s remember this comes without any of the Trump agenda being passed into law or implemented.
With so much focus on the U.S. economy, it’s a breath of fresh air to see foreign developed country economies gain structurally. It has been a long time coming. Now that the seeds of future growth have been sown by massive fiscal stimulus, there is an organic earnings recovery in the making, similar to that of the United States. What’s so inspiring about the “global reflation trade” is that more than 60% of the revenues generated by the companies that make up the S&P 500 are from overseas sales and, as such, we should see upward earnings revisions for many of the multi-national corporations in the months ahead.
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In case you missed it, I encourage you to read my e-letter from last week about the giant companies that are driving the retail industry.