This week, only two things seemed to matter: the agreement among oil-exporting countries to cut their oil production and the upcoming Italian referendum.
The equity market rally after Trump’s election flattened this week. Markets moved sideways as investors look ahead to the impact of the Italian referendum on Sunday.
The energy sector was significantly boosted by the agreement of the Organization of Petroleum Exporting Countries. On Wednesday, OPEC agreed to the first production cut in eight years, an agreement which could extend to involving non-OPEC countries in the future.
The US financials and materials sectors also continue to perform well, based on investor optimism after the US elections. In Europe, the utilities, energy and IT sectors improved this week. European purchasing managers index results were slightly above consensus, supporting this optimism. The financials sector in Europe moved sideways, after reporting good earnings -except for RBS-, tougher UK stress tests, and concerns around the performance of UK banks Standard Chartered and Barclays.
Japanese markets moved notably higher on earnings and improved export prospects due to a weaker yen. It still remains to be seen whether the rally will become a trend, as Trump’s stance on the Trans-Pacific Partnership trade agreement and possible tariffs may be translated into policy in 2017. Japan stands to lose both directly as an exporter, and indirectly through a potential drop in trade with China and the Asia-Pacific region.
This week, China is signaling to limit offshore mergers and acquisitions activity and foreign real-estate investment. China is trying to show an ability to manage capital flows via multiple channels. The local Chinese purchasing managers index reported mixed positive results.
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