So, what do we know?
(A forex, index, and commodity market review)
Equity markets, aside from Chinese markets, had a relatively quiet week despite the escalating war in the middle east and expected retaliation by Israel against Iran.
Weekly change (amount change and percentage change on the week)
FTSE -34 -0.41%
DAX +186 +0.97%
DOW +493 +1.16%
S&P +61 +1.06%
NASDQ +229 +1.14%
NIKKEI +161 +0.40%
Hang Seng -1,339 -5.93%
Equity market tacked on further modest gains last week. With just three weeks to go to the US Presidential Election, the result is still far too close to call. The media is full of views about what will happen if each candidate gets in, but this just remains so uncertain that the market cannot react.
Lat week’s inflation data was worse than consensus, at 2.4% for the headline inflation although it was lower than the 2.5% print for August and marked the sixth monthly consecutive fall in inflation.
The strong non-farm new jobs number released on the 4th put an end to any speculation about a 0.5% cut buy the Federal Reserve on the 7th of November. The odds of a 0.25% cut firmed to 90% after the CPI last week, implying that cut is now all but certain.
Chinese markets continued their wild swings following the stimulus package announced by Beijing before Goolden week. The vast hoards of retail investors piled in to equities that, at some point, pushed the Hang Seng into the position of top performing international index this year.
Over the weekend, Beijing announced further plans to increase spending to alleviate the debt-ridden property sector although many analysts expected more detail about how much would be spent and where. The problem for many investors that jumped onto the band wagon, is that all the good news, and more, has been discounted.
One of Beijing’s problem was highlighted over the weekend, with the release of the CPI and PPI data which missed consensus on both measures. China has been battling deflationary pressures from Q4 last year. Prices had been increasing but the data released Monday disappointed investors with CPI coming in at +0.4%, below the consensus of +0.6%. The PPI data, which measures factory gate prices implies there is waning future price pressures.
Uk markets contended with the volatile oil price which is reflecting the escalating war in the middle east. The budget dominates the press with speculation about what taxes will be raised and what the impact will be. Most fund managers can only wait and just sit on their hands. One thing is clear is that international investors will be overly sensitive to any additional increased borrowing, how ever that might be dressed up.
EURUSD -0.37 -0.34%
GBPUSD -0.55 -0.42%
USDJPY +0.43 +0.29%
Forex markets had a quieter week last week following the sharp rebound in the US Dollar in the first week of October as interest rate expectations were pared. Sterling consolidated its losses versus the US Dollar, and to a lesser extent the Euro, following comments from Andrew bailey about the possibility of more aggressive rate cuts.
Gold +5 +0.19%
UK OIL +0.68 +0.87%
US OIL +0.74 +1.00%
Oil ticked higher last week as the war between Israel and Hezbollah intensifies. Reports suggest that Israel is close to retaliating against Iran for the recent missile barrage directed at it by Iran. Gold reflects the unstable global macro picture and demand from Chian and India.
This week’s data and events to watch out for.
Key event of the week is the ECB meeting. In the UK we have the last inflation data ahead of the MPC meeting next month plus claimant count and average earnings. In the US we have core retail sales.
Monday
Japan Holiday in Japan. Markets closed.
UK International Investment Summit hosted by Labour government
US Columbus Day. All US stock markets remain open. Bond markets closed.
US FOMC member, Christopher Waller speaking at Stanford about economic outlook. USD and US assets sensitive.
Tuesday
UK Claimant count and average weekly earnings. Jobs growth has been slowing along with average weekly earnings although concerns remains amongst the MPC about wage settlements. GBP and UK assets sensitive.
Germany ZEW Economic Sentiment. Survey of institutional investors, analysts and economists. On the decline since mid-year although better number (10.2) expected this month. Euro sensitive.
US Empire State Manufacturing Index. The first respectable number last month looks like it will be reversed with 3.4 expected (last 11.5).
Wednesday
UK CPI inflation. Expected at 1.9% following 2.2% last month. Price pressures easing further. Key number ahead of MPC meeting in November. Swaps market imply a 75% chance of a 0.25% cut in November and 60% chance for a further 0.25% cut in December.
Eurozone Lagarde speaking at event in Ljubljana. With ECB meeting the next day, it is unlikely anything market related will be discussed.
Thursday
Eurozone Interest rate decision. Despite the ECB governing council giving little guidance, analysts expect a 0.25% cut from 3.65% to 3.4%. Press conference 1:45pm (UK time).
US Retail Sales. Headline expected at +0.3% and core at +0.1%. Ahead of the FOMC meeting on 7th November, a stronger number may not help the mood. USD and US assets sensitive.
Friday
UK Retail Sales. Expect a decline of -0.3% following a strong number for August. GBP sensitive.
