Market Roundup: Shanghai tightens market controls
Source: Mithril Asset Management
Shanghai was back on the rise after officials announced fresh steps to rein in short selling. Late Monday, the Shanghai and Shenzhen stock exchanges announced revised rules on short selling to curb volatility, according to statements published on their official websites.
The Nikkei also edged up on the week as the BoJ stuck to its bullish view that it can hit 2% inflation without further intervention.
In the UK the FTSE100 was also looking at a week in the green, even if the markets closed lower in anticipation of US jobs data. Even the much heralded ‘super Thursday’ didn’t create much local furor as the Bank broke with tradition to publish the MPC’s August rates decision, the minutes of the meeting, and its quarterly inflation report, alongside Bank governor Mark Carney’s regular press conference.
Rates were kept on hold with a vote of 8-‐1 indicating a 2016 hike at the earliest.
U.S. stock futures edged lower Friday, after the jobs report came in mostly in line with the market's expectations raising the likelihood for a rate hike.
The nonfarm payrolls report showed that the U.S. gained 215,000 jobs in July, matching industry estimates, and the unemployment rate stayed pat at 5.3%, putting the Federal Reserve in line to raise interest rates for the first time since 2006.
GOING FOR GROWTH
The key dilemma for asset allocators currently is conflicting market signals on the growth outlook. Disappointing economic data for the first quarter in both the US and the major emerging markets have led to downward revisions to global GDP forecasts for this year. The consensus now seems to be for GDP growth of around 2.0%-2.5% in the US and around 6.5% in China. Conversely, recent growth trends in both the eurozone and Japan have been encouraging, with JPMorgan Securities revising up its GDP forecast for the eurozone to 1.6% growth. Overall, however, global growth for 2015 seems unlikely to accelerate much from last year’s slow-gear growth of around 2.7%. We see this as a typical mid-cycle pause in a long (seven- to nine-year) expansion cycle, rather than as a cause for undue concern. The recent spike in bond yields is for us a painful part of normalisation, as investors react to both the prospect of higher interest rates and a stronger growth outlook in 2016 and beyond. It is notable that in May’s BoA Merrill Lynch Fund Manager Survey, 70% of respondents expect the global real economy to be stronger over the next 12 months, while JPMorgan Securities expect global GDP growth to accelerate to 3.3% next year. However, high cash levels (of around 4.5%) imply high levels of investor uncertainty in the near term. Overall, we remain cautiously optimistic on the global growth outlook and therefore retain our tilt towards cyclical expansion and our overweight in equities and underweight in cash and government bonds.
UNDERLYING US EARNINGS-PER-SHARE (EPS) - GROWTH TO REMAIN HEALTHY IN 2015
Despite recent economic data, our constructive outlook for US equities remains intact, given that underlying earnings growth remains healthy. Investors entered the first-quarter reporting season quite skittish as earnings estimates were drastically reduced due to plummeting oil prices and the rapid appreciation of the US dollar. However, with 492 of the S&P 500 companies reporting, 68% have beaten earnings expectations. The healthcare and utilities sectors have seen the strongest year-on-year (y/y) earnings growth at 18.6%