The Weekly Stock Market Report (8 – 14 August 2015)Contributor JPMAM UK
US: LARGE DEAL BOOSTS INDUSTRIALS
- A surprise devaluation of the Chinese renminbi rattled Wall Street in the week to 14 August. However, the three main benchmarks all closed slightly higher, with the Dow Jones gaining 0.6%, the S&P 500 adding 0.7% and the technology-heavy Nasdaq up 0.1%.
- Commodity prices and global stock markets fell sharply after the People’s Bank of China (PBoc) undertook the biggest devaluation of its currency in almost two decades, and followed this with two further, smaller moves. However, fears of a currency war (in which countries manipulate their exchange rates to boost export demand) receded later in the week as the Chinese authorities said there was no basis for a persistent weakening of the renminbi.
- Despite the weakness in resource prices, materials and energy stocks were among the strongest performers amid hopes for further stimulus from Beijing. Industrial stocks also had a positive week after billionaire investor Warren Buffett’s Berkshire Hathaway agreed to buy engineering group Precision Castparts for USD 37.2 billion, in a deal that was viewed as a vote of confidence in US manufacturing.
- In other company news, Google unveiled a corporate restructuring that will see the internet search business become a subsidiary of a conglomerate renamed Alphabet. The company has come under pressure from investors over the costs and capital expenditure it has taken on as it diversifies away from its core business. Although the changes formalise this agenda of heavy investment in technology growth markets, the share price jumped as Wall Street welcomed greater clarity on the company’s future.
- The actions of the PBoC prompted speculation that the Federal Reserve may hold off from raising interest rates next month, as had been widely expected, given mounting global deflationary pressures. However, positive US economic data releases at the end of the week were viewed as putting a September move back on the cards.
- Factory production rose more than forecast in July as car assembly jumped to its highest level since 1978. Total industrial production, which includes mines and utilities, also climbed as oil drilling rose for the first time since September.
- US retail sales rose 0.6% month on month (m/m) in July amid higher demand in almost all categories, from clothing to cars. The May and June readings were revised higher, with sales in June now calculated to have been unchanged m/m, compared with a previous report of a 0.3% decline.
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