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Week in review: Stocks and Bond

This week: terrorism in Manchester, a China bond downgrade and a common link between James Bond and a former Bank of England governor.

The terrorist attack in Manchester on Monday evening led to the UK’s terror alert level being raised to “critical,” meaning the authorities expect further incidents to be imminent.

The effect on financial markets has so far been minimal. Sterling initially edged lower, before recovering. The pound did weaken later in the week however, after economic figures were revised to show that the UK only grew by 0.2% in the first three months of 2017, down from the previous estimate of 0.3%. This was well below the 0.7% growth recorded in the fourth quarter of 2016. Nonetheless, the FTSE 100 Index came close to hitting a record high, climbing 0.6% over the four days to Thursday’s close.

S&P rides high

The UK market’s gains were in part a reflection of investor confidence across the globe. In the U.S., the S&P 500 Index hit an all-time high on Wednesday. Investor sentiment was boosted by healthy corporate results, positive economic data and hopes that central banks will refrain from raising interest rates too quickly.

Minutes from the U.S. Federal Reserve’s most recent interest-rate setting meeting showed most of the participants felt that it would “soon be appropriate” to increase borrowing costs again (many economists are penciling in a 0.25% June rate rise), but that they would refrain from extensive further increases until there was firmer evidence of solid economic improvement.

Over the week to the close on Thursday, the S&P 500 Index rose 1.4%. Stocks in Europe edged higher, with the MSCI World Europe (ex-UK) index climbing 0.2%.

China crisis?

U.S. ratings agency Moody’s Investors Service downgraded its rating on Chinese government bonds, citing concerns about the amount of debt in the Chinese economy and the lack of progress in financial reforms. This will make it more expensive for China to borrow money, something that clearly irked the country’s financial authorities. The ratings agency’s concerns were refuted by China’s finance ministry, which said, “Moody’s has overestimated the difficulties faced by China’s economy and underestimated the government’s ability to deepen reforms.”

The move had little impact on stock markets in the region, which followed U.S. markets higher. The MSCI Pacific (ex-Japan) Index closed the week up by 1.1%.

Not suitable

Over the years, high street bellwether Marks & Spencer has struggled to chime with the fashion tastes of UK consumers. Poor clothing sales were partly to blame for this week’s 64% fall in pre-tax profits. However, restructuring costs were the main reason for the collapse in profits, after the company launched a £400m (US$514m) overhaul of the business last year.

And finally…

“Shaken, not stirred” is of course how James Bond preferred his Martinis. In the week that legendary Bond actor Roger Moore passed away, it was revealed that the tipple is the favorite of another former member of the British establishment.

Bank of England Governor Mark Carney was the victim of a prank email exchange, in which he was duped into believing he was conversing with Anthony Habgood, chairman of the Court of the Bank of England. The prankster opened the exchange by observing that the depiction of author Jane Austen on the new £10 note made her look like she’d had a “bracing martini.” That prompted Carney to joke about the drinking habits of a previous Bank governor, responding: “I will drink the martini and order another two, which was apparently Eddie George’s daily intake....before lunch.”

Important Information

Foreign securities are more volatile, harder to price and less liquid than U.S. securities. They are subject to different accounting and regulatory standards, and political and economic risks. These risks are enhanced in emerging markets countries.

Companies mentioned are for illustrative purposes only and are not intended to be a recommendation to buy or sell any security.

Indexes are unmanaged and are included for illustrative purposes only. You cannot invest directly in an index.

ID: US-260517-33223-1