The Bloomberg Barclays Global Aggregate Bond Index rose 0.67%, while US Investment Grade, Emerging Markets US dollar Bonds, and US High-yield bonds rose 0.61%, 0.53%, and 0.81% respectively. Although global trade tensions continued to ease over the month, there is still net positive inflow into the fixed income markets, pushing bond prices up.

The Fed rate cut in October continue to drive the bond market movement. Right after the FOMC meeting and announcement, Fed Chair Powell’s address was surprisingly hawkish, as he claimed that the current interest rate is appropriate, mentioning reduction in external shocks (possibly referring to trade war and Brexit), and referred to economic indicators as acceptable. Given that the Fed describes the current economy as solid and rising in a strong pace, the market speculates that the October rate cut will be the last cut in year 2019.

Although interest rates are expected to hold constant for the remaining portion of the year, dovish policies could still provide additional support to the fixed income markets. Given that the latest round of quantitative easing policies, both the 20B EUR plan for ECB in Europe and the 60B USD plan for Fed in US, will at least continue until mid-2020, we still see upside potential in the fixed income markets. Heightened volatility and greater downside risk in the equity markets are still expected even though there are more positive news coming from Europe on Brexit and the trade war. With the continuing rate cuts across the globe, high quality debt continue to provide an opportunity to reduce volatility in the portfolio while enhancing the yield via interest income and capital appreciation.

The global central bank rate cut cycle continued in October. Following the Fed rate cuts in September and October, numerous central banks have followed suit, including key EM economies like India, Turkey, Brazil, Malaysia, and Thailand, which can provide a better support for the local economy.

Other than monetary policies, we continue to see more non-monetary policies being enacted to further incite business investment and personal consumption. The Malaysian plan to extended tax benefits to companies for establishing regional or global hubs in the country is an example for attracting investments and creating skilled job opportunities, targeting to leverage the risks from the Sino-US trade war and convert it to an opportunity, transforming the country’s economy. Other measures are also adopted in EM economies, for example Thailand is also looking into adopting a tax cut for its citizens to boost consumption, while India continues to further tax incentives for corporations and individuals. Similar measures could possibly drive better economic growth for the mid to long-term in spite of global political uncertainty.

Yet, the easing but yet ongoing trade war remains one of the biggest threats to EM economies. While the global manufacturing sector remains shaky fundamentally, Vietnam and Taiwan alike should continue to benefit from the effects of the trade war as production line consolidation continues. Although the general market sentiment has greatly improved with the progress in the Sino-US trade talks, the underlying downside risks have yet to subdue, investors should continue to exercise caution over emerging markets with an emphasis on the trade talk progress. Our view on the overall 2019 EM outlook remains neutral.

United States

Despite the recent decline, US equities remained close to the all-time high. During the week, news on the Sino-US trade negotiation dominated the US stock market sentiment. Over the past 5 days ending Thursday, the S&P 500 and the NASDAQ rose around 0.2% to 0.3%, while the Dow fell slightly by 0.06%. It was reported that the Sino-US trade negotiations was on the verge of breaking in the middle of the week, sparking the largest single day fall for S&P 500 index over the month on Wednesday. US President Trump signed a four-week temporary spending bill to prevent a government shutdown once again, delaying it till December 20. On the monetary side, the US Federal Reserve just released the minutes of the meeting, which showed that the authorities believe that the economic outlook is at great risk. Later, Minneapolis Fed President Kashkari pointed out that he did not believe that a recession would occur, and he expected the economy to continue growing. According to Bloomberg interest rate futures data, the chance of an interest rate cut before the end of the year is zero. Next week, the US will release data on consumer confidence, core PCE and final GDP. In addition, the Fed will also announce the latest economic Beige Book.

Europe

European stocks underperformed global markets. . Over the past 5 days ending Thursday, the UK, French, and German stock markets all fell around 0.3% to 0.7%. For the ECB's policy, the bank's chief economist Lane claims that the Bank is yet to reach the end of the road. The general market also expects the central bank to have room to loosening monetary policies in the future. As for economic data, the Eurozone Consumer Confidence Index released this week was -7.2, which was a positive surprise over the -7.3 market expectation and an improvement over the -7.6 last month. There will be more unemployment and inflation data for the Eurozone next week.

China

The performance of the Hong Kong stock market this week was mixed, but the Hang Send Index still recorded a slight increase. Chinese and Hong Kong equity investors focused on the Sino-US trade negotiation development over the week. Although State Council Vice Premier Liu He expressed his cautiously optimistic attitude towards reaching the first phase of the trade agreement, the news indicated that the US has not accepted his invitation to China for further talks, market participants remained cautious as a result. However, it was also reported that if the two sides failed to reach an agreement, the United States might postpone the new tariffs scheduled for 15th December. As for economic policies, Premier Li Keqiang agreed that the Chinese economy is inevitably affected by the slowdown in global economic growth, but emphasised that the government will not deploy in strong stimulus. The market should continue focusing on government economic policy directions.

• Recent activities include : Attended iFAST’s annual symposium 2019 in Berlin Germany, visit Mason Privatbank Liechtenstein office in Liechtenstein, joined The Private Wealth Asia Forum in Hong Kong.
• Media include : SCMP、imoney、AAStocks、TVB、HKEJ、MingPao、HKET、Metro Broadcast、Commercial Radio Hong Kong etc (including but not limited to the above)
• Publishing on newspapers, magazines and online sections : “Capital”, “SingTao Newspaper”, “Sing Tao Investment Weekly”, “Headlines News” , “ET Net”, “OrangeNews”, “Quamnet” and online videos collaborated by Mason Securities limited and Harris Fraser Group.

Brexit matters continue to take the centre stage. Previously, many were worried that the UK would risk a no-deal Brexit, as the UK Prime Minister Boris Johnson has repeatedly emphasised the need for the UK to leave on 31^st Oct 2019 “no matter the circumstances”. Fortunately, the EU did eventually give green light to a further extension of the Brexit deadline till the end of January 2020. With the snap general election called and passed in the parliament, the parliamentary elections should bring forth a conclusion to the whole Brexit debacle. While it is currently too early to predict the outcome of the election, a hard Brexit is less likely, and the ultimate plan should not deviate far from the existing ones.

Given that the European markets have been relatively undervalued due to various geopolitical risks, both the UK and the European markets are possibly set for gains via valuation recovery. Yet, the rally might be limited as the fundamental factors are left unresolved. Eurozone manufacturing PMI remained in the contraction zone for nine consecutive months, while the Euro Area Economic Sentiment Indicator, a leading indicator of Eurozone economy, further dropped to 100.8 in October, continuing the downtrend from late 2017.

As the fundamental growth drivers for the European economy are still missing, we should see a visible but limited upside for the European markets in the short to mid-term. Investors could look out for significant changes to the economic indicators in the coming months before investing for the long term.

Fed chair Powell’s hawkish remarks after the FOMC meeting, plus dropping the “Act as appropriate to sustain the expansion” clause from the Fed statement, lowers the expectation of another rate cut in December. Deriving from the Bloomberg interest rate futures, there is less than 20% chance of another rate cut before the end of 2019. While we might not get another rate cut soon, the Fed balance sheet expansion should continue to provide a healthy support to the markets towards the end of the year. The earnings season gave the market another pleasant surprise. Over 80% of reported S&P 500 constituents posted positive earnings surprises. The strong showing with a limited downward revision on the Q4 outlook allows investors to be more optimistic on US equities.

On the trade war front, a couple of positive news have been circulating, as the US President Trump repeatedly claimed that there has been “faster than expected” progress over the first stage of trade deals, the general atmosphere and sentiment was positive over the trade deal, with the US emphasizing that both sides will sign the first stage of the trade deal.

That said, from a fundamental perspective, we continue to see mixed signals. ISM manufacturing PMI figures continue to stay in the contraction territory, while the Q3 GDP recorded a YoY increase of 1.9% which exceeded market expectations. The US market remains the robust equity market among major markets, but investors should keep an eye on the various leading indicators in the market and continue to stay cautious.

United States

The US stock rally slowed down, as there were doubts on whether China and the United States could reach any agreement as outlined earlier. Over the past 5 days ending Thursday, the three major US stock indexes rose 0.3% - 0.6%. The obstacles in the procurement of agricultural products remains the main issue, which has halted Sino-US trade negotiations. During the week, the US Federal Reserve Chairman Jerome Powell delivered a speech. He claimed that the current monetary policy is appropriate, but the risks are still worthy of attention, while the pressure on the repo market is already under control. The US CPI in October released this week increased slightly to 1.8% YoY, but core inflation fell, as the annual growth rate fell to 2.3%. Next week, there will be data on the US manufacturing PMI and market sentiment. In addition, the Fed will also release the October meeting minutes, which may shed more light on the future monetary policy.

Europe

The European market performance was in line with the global markets. Over the past 5 days ending Thursday, the UK FTSE 100 and German DAX fell 1.53% and 0.82% respectively, while the French CAC rose by 0.17%. In the UK, the latest survey showed that the UK Prime Minister Boris Johnson’s Conservative Party is still leading the Labour Party in polls, but falls short of a majority. The UK's third-quarter GDP and October CPI rose by only 1% and 1.5% respectively, which was slightly worse than expected, the MoM retail sales also recorded an unexpected drop in October, but as the dust settles after the general election in December, we believe that the overall economy outlook will be brighter. Moving on to Continental Europe, Germany's Q3 GDP grew by 0.1% QoQ, which surpassed expectations and also narrowly escaped a technical recession. The Eurozone's Q3 GDP grew by 0.2% QoQ, in line with expectations but growth remains sluggish. More European economic data will be released next week, including Germany's Q3 final GDP and October PPI, as well as the various PMIs in Germany and France.

China

Due to external factors and the disagreements over the trade agreement, Hong Kong stocks performed poorly this week. Over the past 5 days ending Thursday, the Hang Seng Index has fallen 4.8%. The Chinese equities also felt the impact, major stock indices have fallen by 1.49%-1.83% over the period. China released a number of economic data this week, where industrial production, fixed asset investment, and retail sales in October all missed market expectations. However, China's unemployment rate fell to 5.1% and improved. As for trade war matters, it is reported that the Sino-US trade negotiations are currently in a stalemate. The key lies in whether the US agrees to cancel all tariffs under the first-phase trade agreement, or to only cancel the tariffs coming into effect on 15th December; the Chinese on the other hand remained hesitant over the actual figures of agricultural purchases. In addition to paying attention to the trade war development next week, the People's Bank of China will announce the loan prime rate (LPR), and Hong Kong will also announce the unemployment rate in October.

• Recent activities include : Attended iFAST’s annual symposium 2019 in Berlin Germany, visit Mason Privatbank Liechtenstein office in Liechtenstein, joined The Private Wealth Asia Forum in Hong Kong.
• Media include : SCMP、imoney、AAStocks、TVB、HKEJ、MingPao、HKET、Metro Broadcast、Commercial Radio Hong Kong etc (including but not limited to the above)
• Publishing on newspapers, magazines and online sections : “Capital”, “SingTao Newspaper”, “Sing Tao Investment Weekly”, “Headlines News” , “ET Net”, “OrangeNews”, “Quamnet” and online videos collaborated by Mason Securities limited and Harris Fraser Group.

The Bloomberg Barclays Global Aggregate Bond Index and US Investment Grade fell 1.02% and 0.65% respectively, while Emerging Markets US dollar Bonds and US High-yield bonds rose 0.04% and 0.36%. As trade tensions somewhat eased over the month, risk capital moved out of the safer assets over September. That said, we do not think that the trade conflict is going to be truly resolved anytime soon due to fundamental differences, the economy would still face downward pressure, investors should continue to look into high quality bonds in the times of turbulence. With the drop in recent bond prices, this offers an opportunity to further increase the bond exposure in the investment portfolio

Even though the fed did cut interest rates in September, it is expected that there is more than 90% chance that Fed will take at least another cut before the end of the year to support the economy. Sources also suggested that the board is currently considering expanding the Fed balance sheet again soon. With the global central banks entering a possible rate cut cycle and adopting generally dovish policies in light of a possible economic downturn, increasing bond exposure can also capture the capital appreciation.

As we get into the last quarter of the year, we expect heightened volatility and greater downside risk in the equity markets. In light of the late cycle potentially ending, investors should prioritise quality over yield, with a larger portion of fixed income investments held in investment grade bonds, which can help limit volatility while still improving risk adjusted returns.

Source: Bloomberg, Harris Fraser, Data as of :7-10-2019

US

US stocks lagged behind global equities this week, the S&P 500 and NASDAQ were only up around 0.4% over the past 5 days ending Thursday, while the Dow recorded a 0.8% decline. US corporate earnings season continued, among the 192 index companies that have announced earnings, more than 80% companies posted positive earnings surprises, although the overall corporate earnings growth is down 0.4% year-on-year. This implies that although profits surpassed expectations, there is still non-existent growth. The market will focus on the upcoming “Super Data Week”: In addition to the preliminary Q3 GDP, non-farm payrolls, various PMI, and consumer confidence figures, the US Federal Reserve will announce the latest interest rate decision. According to the Bloomberg interest rate futures data, there is almost a 90% chance of a rate cut in October.

Europe

With declining chances of a “hard Brexit”, UK stocks rebounded for three consecutive days. Over the past 5 days ending Thursday, British stocks rose more than 2%, while the DAX also rose about 1.7%. Earlier, the House of Commons agreed to delay voting on Brexit arrangements, after which Prime Minister Boris Johnson’s second attempt on a Brexit agreement was voted down in the Commons. While sources reported that the EU will approve postponing the Brexit deadline, Johnson said that if Brexit is delayed until 31^st January, the UK will hold a general election. On the monetary side, the European Central Bank maintained its monetary policy unchanged at this week's meeting. President Draghi painted a pessimistic outlook of the Eurozone economy. Claiming that the growth momentum of the Eurozone has weakened and the overall inflation remains sluggish, it is necessary to keep the monetary policy dovish for a longer period. After the ECB meeting, the Euro slightly weakened against the Dollar. Next week, the Eurozone Q3 GDP, CPI and unemployment figures will shed more light on the European economic health.

China

The market sentiment on the Sino-US trade negotiations has improved. Earlier in the week, US President Donald Trump expressed hopes of signing relevant agreements with China in November, the White House economic adviser Kudlow also pointed out that it is possible to cancel the scheduled tariff plans in December. Later, it was reported that China is willing to purchase US$20 billion of US agricultural products within one year after signing the partial agreement, and will consider increasing further purchases. As the easing trade tensions boosted market confidence, mainland stocks performed better this week. The official Chinese PMI and Caixin PMI data will be released next week.

• Recent activities include : Attended The Private Wealth Asia Forum, Harris Fraser Hong Kong Property Market Outlook andInvestment Strategy Seminar and Press Conference, Taiwan Immigration Seminar etc.
• Media include : SCMP、imoney、AAStocks、TVB、HKEJ、MingPao、HKET、Metro Broadcast、Commercial Radio Hong Kong etc (including but not limited to the above)
• Publishing on newspapers, magazines and online sections : “Capital”, “SingTao Newspaper”, “Sing Tao Investment Weekly”, “Headlines News” , “ET Net”, “OrangeNews”, “Quamnet” and online videos collaborated by Mason Securities limited and Harris Fraser Group.

Investment Research -  Harris Fraser Group 

United States

US stocks are still in a correction period, but the three major indices recorded a rise over the past 5 days ending Thursday. The market is focusing on if there are any breakthroughs in the latest round of Sino-US trade talks. Representatives on both sides have showed a cautiously optimistic attitude towards reaching a partial agreement, providing support to the equity markets. The US Federal Reserve Chairman Jerome Powell is another point of focus, as he mentioned that the Fed would resume expanding its balance sheet soon, driving the short-term US Treasury bond prices up, the announcement of the plan also improved equity market sentiment. The US will release the economic Beige Book and September retail sales data next week.

Europe

Trade worries have eased and European stock markets have performed relatively better than global stocks recently. Over the past 5 days ending Thursday, both the French CAC and German DAX recorded cumulative gains of over 2%, while the FTSE 100 also recorded a 1.54% rise. Earlier, the European Central Bank (ECB) announced after the September meeting that it would restart quantitative easing in November. The ECB minutes released last week showed that ECB officials have differing opinions over the composition of the monetary stimulus, about 30% of the 25 members of the management committee actually opposed to the restart of quantitative easing. On the other hand, the Brexit fiasco, which is about to reach the deadline, has took a dramatic turn. The British and Irish leaders issued a statement after the talks, claiming that they have found a way to reach a potential agreement, driving the GBP/USD up sharply from about 1.22 to a level above 1.24.

China

The Chinese stock market resumed on Tuesday after the long holiday, and recorded a good performance. Both the CSI 300, SSE Composite and SZSE Component Indices rose for four consecutive days. On the contrary, the performance of HSI was mixed, with the best performance recorded on Friday. This week, the market has been focusing on the Sino-US economic and trade talks, yet there were still rumors on the eve of the talks. It was reported that the White House is looking into restricting government pension funds from investing in Chinese stocks. However, after the conclusion of the first day of trade talks, both representatives hinted that they were cautiously optimistic on reaching an agreement, and the US President Donald Trump also remarked that the talks went smoothly. The news drove the overall Asian stock market up on Friday. Next week, China will release a number of important economic data, including Q3 GDP, CPI, Fixed Asset Investment, Industrial Production, Retail Sales etc.

Recent activities include : Attend The Private Wealth Asia Forum, Harris Fraser Hong Kong Property Market Outlook and Investment Strategy Seminar and Press Conference, Taiwan Immigration Seminar etc.

Media include :  SCMP、imoney、AAStocks、TVB、HKEJ、MingPao、HKET、Metro Broadcast、Commercial Radio Hong Kong etc (including but not limited to the above)

Publishing on newspapers, magazines and online sections  : “Capital”, “SingTao Newspaper”, “Sing Tao Investment Weekly”, “Headlines News”  , “ET Net”, “OrangeNews”, “Quamnet” and online videos collaborated by Mason Securities limited and Harris Fraser Group.

US

As Chinese trade negotiators cancelled the US farm visit last week, stock markets tumbled as the prospects of an early trade deal diminish. President Trump later on reassures the market, claiming that a deal to end the trade war “could happen sooner than you think” on Wednesday, he also mentioned reaching an early trade agreement with Japan on agricultural products, relieving the tensions built up and providing support to the market. All 3 major indices recorded a slight drop of 0.75-1.86% over the past 5 days ending on Thursday. Economic figures released over the week came as a surprise. While Manufacturing PMI and Q2 Core PCE (QoQ) posted surprisingly strong figures, the more important Services PMI and Consumer Confidence Index both missed expectations, which highlights possible economic downturn in Q3 2019. Durable Goods, August Core PCE and University of Michigan Consumer Sentiment figures will be released later tonight, while ISM Employment & Manufacturing, Unemployment, and Non-farm Payroll figures will be released next week. From the figures, investors will be able to catch a better glimpse of the US economic health.

Europe

As of Thursday, most European markets has recorded a drop with STOXX 600 dropping 0.76% over the past 5 days. As the Supreme Court ruled that the prorogation of the parliament was unlawful, MPs resumed work on Wednesday amongst Brexit chaos. While EU leaders agree there is likely to be another extension to the Brexit deadline, the defiant UK Prime Minister Boris Johnson insists on leaving the EU on 31 October “no matter what”. Investors should continue to keep an eye on the further development as the deadline closes in. European economic figures were terrible, with all major PMI figures missing expectations. In particular, Markit Germany Manufacturing PMI even fell to 41.4, which is the lowest point ever since mid-2009. Poor economic figures due to global political uncertainty will likely plague the markets in the coming months as the trade war and Brexit continues. Next week the market will be mainly focusing on European retail, PMI, and CPI figures, plus UK PMI and GDP figures.

China

Chinese markets recorded a dip over the week ending on Friday, with drops ranging from 1.82-3.77% across major indices. Industrial profits dropped by 2% YoY in August, mainly due to a 3.2% drop in the manufacturing sector, combining that with the negative PPI figures and we could catch a glimpse of the trade war effects building up. China’s Foreign Minister Wang Yi mentioned that China is willing to increase the purchase of US goods, hoping both sides can reach a trade deal soon, echoing Trump’s earlier remarks. With positive news building up in the background, we could expect Chinese markets to react positively, especially as the National Day closes in, the government is expected to provide better support to the markets. Just right before China enters the weeklong holiday, Caixin PMI data is scheduled to release on Monday, which could provide further insight into the manufacturing sector health.